Development exit finance explained

Development exit finance is a short-term bridging loan that repays a development facility once a scheme is built but not yet sold or let. It replaces the development loan, usually at a lower rate, and gives the developer breathing space to market the finished asset without the pressure and cost of the original facility running on. We arrange development exit finance for logistics and industrial schemes across the UK, and as an introducer rather than a lender we place the case with the bridging lender most likely to fund it on sensible terms.

This guide explains what development exit finance is, how it works, what it is used for, what it costs and how much you can borrow against a completed scheme. We cover the rates and the loan to value a lender will offer, the difference between exit finance and refinancing onto an investment term loan, and how quickly a facility can be arranged. We have written it for developers reaching practical completion who want to cut their finance costs and remove their original lender's deadline while the sale or letting completes.

What is development exit finance?

Development exit finance is a bridging facility used to repay a development loan once construction is complete or close to complete. It is a refinance of the original development finance, secured against the finished asset, and it is structured to run for a short period, typically up to eighteen months, while the developer sells the units or signs leases. Because the building now exists and can be valued as a real asset, the risk to a lender is far lower than during the build, which is why exit finance is usually cheaper than the development loan it replaces.

The product exists because development finance is expensive to leave running once a scheme is built. The original facility was priced for construction risk that has now passed, and many development loans carry an exit fee and a hard end date that creates pressure to sell quickly, sometimes at a discount. Development exit finance removes that pressure by replacing the development loan with a calmer, cheaper bridging facility geared to the sales or letting period.

It sits firmly in the bridging family of products. Like any bridging loan it is short-term, interest is usually rolled up rather than serviced, and it is repaid by a defined exit, in this case the sale or the letting and refinance of the completed scheme. The difference from a standard bridge is simply the context: the security is a finished development the borrower has just built.

How does development exit finance work?

Development exit finance works by redeeming the existing development loan and putting a new bridging facility in its place against the completed building. A lender values the finished asset, agrees a loan to value, and advances funds that clear the development facility, often releasing surplus equity to the developer at the same time. The new loan then runs while the developer markets the scheme, and it is repaid when the units sell or when the building is let and refinanced onto a long-term investment mortgage.

Because the building is finished, a lender will usually lend a higher loan to value than was available during the build phase, frequently up to seventy or seventy-five percent of the completed value, with the exact figure depending on whether the asset is sold or held. Interest is normally rolled up and added to the balance, so there is no monthly repayment to service while the sale completes, which protects cash flow during a period when the scheme may not yet be producing income.

The exit, in lending terms, is the event that repays the bridge. For a developer selling units it is the sale proceeds. For a developer holding the asset it is the refinance onto an investment term loan once a tenant is in place and the income is established. We make sure the exit is realistic and evidenced before placing the facility, because a bridging lender prices and underwrites around the credibility of that repayment route.

What is development exit finance used for?

The primary use is to cut finance costs at the end of a scheme. Once a logistics or industrial building is complete, the construction risk has gone, so continuing to pay development finance rates makes little sense. Replacing the development loan with cheaper exit finance reduces the monthly cost of carry and protects the developer's margin during the sales or letting period, which can stretch out longer than the original facility allowed for.

It is also used to remove the deadline pressure that a development loan imposes. The original facility usually has a fixed end date, and as that date approaches a developer can be forced to accept a low offer simply to redeem the loan on time. Development exit finance resets the clock with a fresh term geared to the marketing period, so the developer can hold out for the right buyer or tenant rather than selling into a deadline.

A third use is to release equity. Where the finished scheme is worth more than the development loan plus costs, an exit facility set at a sensible loan to value can repay the development finance and return some of the developer's profit in cash, which can be deployed into the next project before the current one has fully sold. This is common for developers running several schemes at once who want to keep their equity working rather than locked in a building waiting to sell.

What are the rates and costs of development exit finance?

The rate on development exit finance is lower than on the development loan it replaces, because the construction risk has passed and the lender is now secured against a finished, valuable asset. Pricing is typically quoted as a monthly rate in the bridging market, and it depends on the loan to value, the quality of the asset, the strength of the exit and the experience of the developer. A clean scheme with a credible sale or refinance behind it attracts the keenest rate.

Alongside the rate there are fees to factor in. A lender charges an arrangement fee on the facility, there is a valuation cost, and legal fees on both sides, plus our own fee as the arranger. Some facilities carry an exit fee on redemption, though many bridging lenders price exit finance without one. Because interest is usually rolled up, the total cost is the rate compounded over the months the facility runs plus the fees, which is the number that actually affects the developer's margin.

We compare the total cost of finance across the bridging market rather than the headline rate alone, because a facility with a low rate but a heavy arrangement or exit fee can work out dearer than a higher-rate alternative with lighter fees. Getting the full cost picture right is the point of the exercise, since the whole reason to refinance onto exit finance is to save money relative to leaving the development loan in place.

How much can you borrow, and how quickly can it be arranged?

How much you can borrow with development exit finance is set by the loan to value a lender will offer against the completed scheme. Most lenders sit between seventy and seventy-five percent of the finished value, so on a logistics scheme worth five million six hundred thousand pounds an exit facility could run to around four million pounds, which would comfortably repay a development loan of roughly three and a half million pounds and release equity to the developer. The exact figure depends on whether the asset is being sold or held and on the strength of the valuation.

Speed is one of the main attractions. Because the asset exists and can be valued straightforwardly, development exit finance can be arranged far more quickly than the original development loan, often within a few weeks and sometimes faster where the valuation and legals are clean. This matters when a development facility is approaching its end date and the developer needs to refinance before the deadline bites.

Eligibility is broad. Exit finance is available to first-time developers as well as experienced ones, because the lender is underwriting a finished building rather than a construction track record, though a first-time developer should expect closer scrutiny of the exit plan. Whether the facility is regulated depends on the nature of the security and the borrower, and on a commercial logistics scheme held in a company it is normally unregulated. We confirm which side of that line a deal falls on before placing it.