Development Bridging solution Tips, Designers guide, Online Architecture Advice
Development Bridging: The Perfect Solution
14 May 2021
Are You Approaching the End of Your Developments Loan Terms?
Whether you are a developer looking to sell a couple of penthouses with riverside views, or a luxury wharf residential development in Mayfair, you will be looking to sell the property to a buyer at the earliest opportunity. If you are nearing completion and you still haven’t managed to sell the property, you may want to consider a development exit strategy before you’re under time pressure.
While development projects have the potential for lucrative returns in capital, there are risks associated with development projects. One of the risks that developers face is that their loan term expires before all the assets have been sold. Development exit finance is a type of bridging loan used to repay the outstanding finance on a development scheme, once the project has reached practical completion. Paul Welch from largemortgageloans.com comments on the risks involved with developers not preparing an exit strategy,
“The biggest threat is that a developer doesn’t allow themselves sufficient time to sell their assets in an orderly manner. A development exit provides a valuable 6-12 months to sell the property. The worst-case scenario for a property developer is that they don’t sort out an exit plan, and as a result, the property gets taken out of their hands. It could end up being auctioned off, leaving the developer in a vulnerable situation.
It is prudent for developers nearing the end of their loan term to contact a real estate advisor such as largemortgageloans.com, who have exclusive access to lenders providing development exit solutions, such as development exit bridging. Development exit bridging will put developers in a position of control, and manoeuvre them into a watertight position. The longer a developer has to sell the property, the more likely they will achieve a desirable result.
A typical scenario where development bridging might be used is if you have completed a number of apartments to a high standard in a well-located area, marketing has commenced. The scheme has generated strong interest to date, however, sales have not materialised as expected. Before a developer considers purchasing the next site; they might want to consider a developing exit loan. By putting in place a development exit loan the developer has time to release some equity to purchase new development without having to wait until all the units have been sold. In uncertain times, having an exit strategy is very important.
Lenders Assessment Criteria
Development exit bridging loans offer more flexibility over traditional underwriting due to the fact there are fewer requirements for onboarding. The typical criteria that lenders are looking for developers to achieve a development bridging will typically include:
- Properties must be a practical completion with building control and warranties held
- No significant credit issues
- There must be in evidenced demand for the built property
In addition to this, lenders will also assess the risk of a developers profile by evaluating the loan to cost (LTC), loan to gross development value (LTGD), return on investment (ROI) and their return on costs.
The high loan to value that can be achieved through development bridging is part of what makes exit plan solutions so attractive. Paul Welch comments, “The market has seen significant growth over the past few years, certainly in the residential market. We work with several funders that provide funding for exit plan solutions with a loan to value of 70-75%. Development exit bridging has broad appeal. We expect to see the product on a growth trajectory because a developer’s success is contingent on products that afford them maximum flexibility.”
largemortgageloans.com has exclusive deals with lenders offering development exit finance, in addition to a multitude of other financial products aimed at developers. To speak to one of a real estate advisor about a project, contact largemortgageloans.com
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