As originally published in
Financial Reporter.
The average time taken to sell a property in the South East is approaching six months, according to RICS, which says that properties elsewhere in the country are taking up to five months – and these figures support the anecdotal evidence that the transaction market continues to be stagnant.
This is bad news for developers with completed schemes and we’ve seen a significant increase in the demand for development exit loans to help investors bridge the gap between development finance and a longer-term exit, whether it’s refinancing or selling the asset.
And it’s not just demand for development exit loans that has been increasing, the term of loans sought by developers is also on the rise. With the ongoing political squabbling doing little to create an environment of certainty, developers are adjusting their expectations and taking a more pragmatic approach.
Many have accepted that they may be in this for the long haul and, rather than arranging short-term finance of 12 or 18 months only to potentially have to refinance again at the end of the term, more developers are buying extra time at the outset in the form of three year development exit loans.
Three years is undoubtedly a long time for short-term finance and the risk associated with this more cautious approach is that a developer could find a suitable exit in less time and have to pay a fee to redeem the loan.
This is why, at Daven Trust, our development exit products are available on a three- year term with a two-year ERC, enabling developers to repay the loan without penalty any time after two years if it suits them. The products can even include the flexibility to sell an agreed percentage of the properties during the ERC period, giving the client a product that works on their terms.
We’re not the only lender offering more flexible development exit loans of course, and this area of the market is currently seeing a lot of innovation in response to growing demand.
So, if your developer clients are looking to buy themselves more time, take another look at the options – they may be able to access a more flexible solution than you thought possible.