LENDER ATTITUDE IS CRUCIAL IN WORKING AROUND DEVELOPER EXIT DELAYS - COLIN SANDERS - BRIDGING & COMMERCIAL
28.08.23
LENDER ATTITUDE IS CRUCIAL IN WORKING AROUND DEVELOPER EXIT DELAYS
By Colin Sanders, Chief Executive Officer, Tuscan Capital Limited.
Given the increasingly challenging property market, developers are frequently finding themselves needing more time to achieve sales for their newly built homes.
It may be that completion of the new properties has been delayed by shortages of supplies or labour.
Or, it could be simply needing a bit longer to market the properties properly, given the latest tumult in the housing market could have caused some would-be buyers to hold off for a little while.
Despite this need for more time, many developers are staring down the barrel of pressing deadlines for repaying their lenders or investors for the initial funding facility.
As a result, we have all seen developers turning with greater regularity to what has become known as the developer exit loan.
The existing lenders and investors are repaid, while the developer benefits from the extra time needed to complete the sales and maximise the revenues generated.
The finance provider offering the developer exit loan wins too, since they take on a shiny new stock of property with a builders' warranty in place, ensuring all the building and planning risk is all but eliminated.
But the reality is that it's becoming ever more infrequent for circumstances to be quite that straightforward for developers.
Currently, we are seeing a host of snags that threaten the chances of developers obtaining the funding they need for that additional breathing space.
A common sticking point is the valuation of new units; we all know falling demand from would-be buyers has dented the typical value of a property.
According to the latest house price index from Halifax, property prices are down by 2.4% year-on-year, for example.
With this in mind, it's common to see a significant discrepancy between the developer's asking price for the new units and what a professional chartered surveyor believes they are worth.
While developers expect the property to command a new-build premium, it is difficult for finance providers to ignore the valuation from the surveyor - even if that is a disappointment for the borrower and broker.
Planning conditions can also prove an issue. It's regular practice for planning approval to come with a long list of conditions that need to be met, and proving this has to be done - or even getting the local planning officer to visit the site to inspect the development and sign off that the conditions have been satisfied - can be a lengthy process.
Getting building regulation approval and utility connections in place can also take an age.
These final pieces of the project can lead to a significant overrun in the development reaching completion.
These hurdles can prove fatal to the chances of the developer being able to obtain the funding they need to take the project through to the end.
We know from our conversations with brokers how frustrating it can be when these issues emerge and throw a spanner in the works of a case crying out for a development exit loan.
Ultimately, a lot comes down to the attitude of the lender and how flexible they can be in finding a way around unresolved difficulties.
Read the full article on Bridging & Commercial.
For more information or to get in touch with the team, please contact us:
Call Us: 020 7846 9030
Email info@tuscancapital.co.uk
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A range of case studies demonstrating examples of previously completed loans can be found here.