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Introduction
A property development loan is approved on the strength of both the project and the proposed exit. The lender may be comfortable funding the acquisition, construction and holding costs, but it still needs a credible and clearly documented path to repayment. That path is the exit strategy.
For some developments, the exit is straightforward: complete the project, settle presold lots or dwellings and repay the facility from sale proceeds. For others, the intended outcome is to retain the completed asset, establish income and refinance into a longer-term investment loan. Larger projects may be sold in one line to an institution, split into stages, progressively released or partly retained. In practice, many successful developments use more than one exit rather than relying on a single outcome.
A strong exit strategy is not merely a sentence in a finance application. It is a plan supported by timing, evidence, realistic values, purchaser or tenant demand, refinance assumptions, tax and legal considerations, and a fallback if the market does not behave as expected. The quality of that plan can influence leverage, presale requirements, loan term, covenants, pricing and whether a lender is willing to proceed at all.
This guide explains the main property development exit strategies used in Australia, how lenders assess them, the risks attached to each approach and how developers can build a more resilient repayment plan before committing to a facility.
“Every lender funds the exit, not the project.”
— The Australian Property Development Handbook
What Is a Property Development Exit Strategy?
A property development exit strategy is the method by which the development debt will be repaid and the developer's capital and profit will ultimately be realised. It is the bridge between the construction phase and the final commercial outcome of the project.
The exit can involve selling completed stock, refinancing a completed income-producing asset, selling the entire project to another investor, bringing in a new equity partner, progressively releasing stages or using a combination of these methods. The correct strategy depends on the development type, ownership objective, target market, funding structure and the developer's ability to carry the project after completion.
From a lender's perspective, the exit is inseparable from credit risk. Development lending is commonly repaid from property-generated cash flow, whether through sales, rental income or refinancing supported by that rental income. A lender therefore wants to understand not only the projected value of the completed property but also who is likely to buy it, lease it or refinance it, when that is expected to occur and what happens if the timing slips.
A credible exit should be specific enough to test. 'Sell on completion' is not a complete strategy unless it is supported by expected selling periods, pricing evidence, marketing assumptions, settlement timing and debt-release calculations. Similarly, 'refinance and hold' is not convincing unless the forecast net income, valuation yield, debt-service capacity and proposed investment-loan terms demonstrate that the completed asset can genuinely support the refinance.
Why Lenders Focus So Heavily on the Exit
A development facility is generally short term. It is designed to fund a finite construction and sales period rather than remain outstanding indefinitely. The lender's return of capital therefore depends on the exit occurring within the agreed loan term.
A project can appear profitable on paper and still present unacceptable repayment risk. For example, a feasibility may show a healthy margin based on all apartments selling at the forecast price. If sales are slow, settlements are delayed or buyers default, the lender may remain exposed beyond maturity even though the development has created value. The problem is then liquidity rather than theoretical profitability.
Lenders also know that refinancing conditions can change. A completed commercial asset may be worth the forecast amount, but the take-out lender may assess a lower value, require a lower loan-to-value ratio or apply a higher interest-coverage hurdle. The Reserve Bank of Australia has repeatedly identified refinancing risk as an important issue in commercial real estate, particularly where leverage is high or valuation and serviceability standards tighten. A sensible exit plan therefore allows for a gap between development debt and the amount a new lender may be willing to advance.
The exit affects the original facility structure. A sell-down strategy may lead to presale conditions, minimum settlement proceeds and individual lot-release prices. A refinance-and-hold strategy may require preleasing, a stabilisation period, evidence of recurring income and an acceptable forecast exit LVR. An institutional sale may require the lender to review the proposed sale contract, buyer conditions and settlement timing.
The Main Exit Strategies Available to Developers
Most development exits fall into a small number of broad categories. The distinction between them is important because each produces different cash flow, timing and risk.
The first is retail sell-down, where individual dwellings, lots or strata units are sold progressively to owner-occupiers or investors. The second is a whole-of-project or one-line sale to another developer, fund, institution or private investor. The third is refinance and hold, where short-term development debt is replaced by longer-term investment debt once the completed asset is producing income. The fourth is a staged exit, where part of the development is sold or refinanced while later stages continue. The fifth is a hybrid strategy combining sales, retained stock, refinancing and possibly new equity.
No single method is automatically superior. A sell-down may generate the highest gross revenue but can take longer and involve greater settlement risk. A one-line sale may be quicker but often involves a discount for bulk acquisition. Refinancing can preserve long-term ownership and defer a sale, but it requires adequate income and borrowing capacity. A hybrid exit may be more resilient, although it is also more complex to document and manage.
Exit Strategy 1: Retail Sell-Down
Retail sell-down is the standard exit for many townhouse, apartment, house-and-land and land-subdivision projects. Individual properties are marketed to separate purchasers, and settlement proceeds are applied to repay the development facility in accordance with the lender's release-price requirements.
This strategy can maximise revenue because the developer is selling each property at a retail price rather than accepting a bulk discount. It also allows debt to reduce progressively as settlements occur. In a subdivision, early-stage lot settlements may help fund or de-risk later stages. In an apartment or townhouse project, settlement of presold stock can rapidly reduce peak debt after practical completion and registration.
The weakness of a retail sell-down is its dependence on multiple buyers. A project may have strong presales but still face valuation shortfalls, finance declines, purchaser defaults or delayed settlements. Unsold completed stock also attracts interest, rates, body corporate costs, marketing expenses and maintenance while the loan remains outstanding.
A lender assessing this exit will examine the depth of demand, the sales evidence used in the feasibility, the rate at which comparable stock is being absorbed and the quality of the presale contracts. It may discount contracts that are conditional, concentrated with one purchaser, exchanged at incentives above market levels or supported by unusually small deposits. The lender will also calculate how many settlements are needed to clear the debt rather than assuming every projected sale will occur exactly as planned.
Developers should prepare a month-by-month settlement schedule showing expected gross proceeds, GST where applicable, selling costs, lender release payments and the remaining debt after each tranche. This reveals whether the facility is likely to be repaid early, close to maturity or only after the final few properties settle.
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Understanding Lender Release Prices
Where individual lots or units are sold, the lender will usually specify a minimum amount that must be paid from each settlement before its mortgage is released over that property. This is commonly described as the release price.
The release price is not always equal to the unit's share of total debt. A lender may require a higher proportion of the net sale proceeds so that the debt reduces faster than the security value. It may also apply different release prices to premium and lower-value stock. The objective is to prevent the best properties from being sold first while leaving the lender with a weaker residual security pool and too much outstanding debt.
Developers need to model release prices before signing the facility. A project can be profitable overall but experience a cash-flow squeeze if too much money from early settlements is swept to the lender and insufficient cash remains to pay tax, complete defects, fund later stages or meet investor distributions. Negotiating sensible release mechanics is therefore as important as negotiating the headline loan amount.
The funding model should also distinguish between gross contract price and the cash actually available after GST, selling commission, legal costs, purchaser adjustments and the lender's release requirement. Relying on gross sales figures can significantly overstate the liquidity generated by settlements.
Exit Strategy 2: A One-Line or Whole-of-Project Sale
A one-line sale involves selling the completed project, a substantial parcel of stock or the development entity to a single purchaser. Potential buyers may include institutional investors, private property funds, family offices, affordable-housing providers, build-to-rent operators, listed or unlisted property groups and other developers.
This exit can offer speed and certainty. Instead of coordinating dozens of retail settlements, the developer may complete one transaction with one purchaser. The approach can be especially relevant for industrial estates, childcare centres, service stations, medical assets, build-to-rent projects, completed apartment stock, land subdivisions and commercial properties with established leases.
The trade-off is price. A bulk purchaser will often expect a discount to compensate for concentration risk, transaction size, future leasing or selling effort and its required return. The developer must compare the certainty and holding-cost savings of the one-line sale with the potential additional revenue from selling assets individually.
Lenders will assess the buyer's financial capacity, the conditions in the sale contract, the deposit, due-diligence period, finance clause, settlement date and whether the net proceeds are sufficient to repay the facility. A conditional expression of interest is not equivalent to an unconditional contract from a well-capitalised buyer.
Developers using this exit should consider whether the buyer requires practical completion, occupancy approval, a minimum level of leasing, tenant incentives to be paid, defects to be rectified or warranties to be assigned before settlement. These requirements can extend the period between construction completion and debt repayment.
Exit Strategy 3: Refinance and Hold
A refinance-and-hold strategy is used when the developer wants to retain the completed property as a long-term investment. The development facility is repaid using a new investment loan once the asset is complete, legally capable of occupation and sufficiently leased or income-producing.
This strategy is common for industrial warehouses, neighbourhood retail, medical centres, childcare centres, service stations, self-storage, commercial buildings and other assets where stable rental income can support ongoing debt. It may also be used for selected residential stock, although the refinance is then commonly assessed against the borrower's broader income and residential lending criteria rather than commercial property cash flow alone.
The central issue is that the development loan and the investment loan are assessed differently. A development lender focuses on cost, completion risk, end value and the proposed exit. The take-out lender focuses on sustainable income, tenant quality, lease expiry profile, operating expenses, capital expenditure, valuation yield, interest coverage and the borrower's ability to service the debt over time.
A completed value does not automatically translate into the same amount of refinance debt. Suppose the development facility peaks at $18 million and the completed asset is valued at $26 million. A new lender willing to advance 60 per cent of value would provide $15.6 million, leaving a $2.4 million funding gap before transaction costs. The developer must repay that gap from equity, retained cash, partial asset sales, new investors or a lower peak development debt.
The refinance should be modelled at conservative assumptions rather than the most optimistic market terms. This includes testing a lower valuation, a softer capitalisation rate, higher interest rate, vacancy allowance, reduced rent, lender fees and a period for lease stabilisation. A project that only refinances at the top of the expected valuation range has a fragile exit.
Timing is equally important. Many investment lenders will not fund immediately at practical completion if the asset is vacant, leases have not commenced or operating history is insufficient. The development facility may therefore need an adequate tail period after completion, or a separate residual-stock or stabilisation facility may be required.
Exit Strategy 4: Sell Some and Retain Some
A hybrid sell-and-hold strategy allows a developer to use selected sales to reduce debt while retaining assets with stronger long-term value or income potential. Examples include selling most townhouses while retaining two for investment, selling front-stage subdivision lots while holding commercial land, or selling part of an industrial project while refinancing a leased warehouse.
The attraction is flexibility. The sales can generate liquidity and reduce leverage, making the retained portion easier to refinance. The developer may also preserve exposure to future capital growth or recurring income without carrying the entire project.
The challenge is allocation. The developer needs to determine which assets will be sold, which will be retained and how the lender will allocate release prices across them. Retaining the highest-value properties while selling weaker stock may not produce enough settlement proceeds to reduce the debt. Retaining lower-value or poorly leased stock may make the refinance difficult.
A robust hybrid model should show the debt balance after each planned sale, the value and income of the retained assets, the proposed refinance amount and the remaining equity required. It should also test the reverse scenario: what happens if the intended retained asset must instead be sold because the refinance is unavailable?
“A refinance is a plan, not a hope.”
— The Australian Property Development Handbook
Exit Strategy 5: Staged Development and Progressive Exit
Large subdivisions, master-planned communities and multi-building projects are often delivered in stages. Each stage may have its own construction period, sales program, title registration and debt-reduction cycle. The exit from one stage can support the equity or liquidity needed for the next.
Staging can reduce peak debt and limit exposure to unsold stock, but it creates dependency between phases. If settlements in Stage 1 are slower than expected, the developer may not have sufficient cash to commence Stage 2. If the lender sweeps all proceeds to debt, a new advance or equity contribution may be needed before the next stage can begin.
A staged facility should clearly explain how land and debt are allocated, what milestones permit the next stage to commence, how release proceeds are treated and whether surplus cash can be recycled into later works. The developer should also understand whether the lender has committed to the entire project or only the current stage.
The fallback position matters. Later stages may need to be postponed, sold as englobo land or refinanced separately if market demand weakens. Planning approvals, infrastructure obligations and shared works should be structured so that a pause between stages does not leave the completed portion commercially or legally compromised.
Exit Strategy 6: Sale of the Approved Site or Partially Completed Project
Not every exit occurs after construction. A developer may create value through acquisition, planning, rezoning, design, approvals, tenant commitments or presales and then sell the project before physical completion. This is sometimes described as an approved-site sale, permit sale or development-rights exit.
This strategy can reduce construction exposure and release capital sooner. It may suit a developer whose expertise is site origination and approvals rather than delivery, or a project that becomes more valuable to a specialist builder, institutional owner or larger developer once approvals are secured.
However, the buyer will price the remaining risks and its required profit. The sale value may also be sensitive to changes in construction costs, finance availability and end-market demand. A project that appeared highly valuable at approval may attract lower offers if build costs rise or the buyer's target return increases.
Where acquisition or pre-development debt is outstanding, the sale contract must produce sufficient net proceeds to repay the lender, discharge security and settle project liabilities. The lender may also need to consent to the sale, assignment of approvals or change of control.
Exit Strategy 7: Bringing in New Equity or a Joint-Venture Partner
New equity is not usually the primary exit from development debt, but it can form part of a recapitalisation. An incoming investor may contribute capital that reduces the existing facility, funds completion or supports a refinance. The original developer may retain a smaller ownership interest and continue managing the project.
This approach can preserve the project when there is a temporary funding gap or when the developer wants to hold the asset but cannot satisfy the refinance alone. It may also avoid a forced sale into a weak market.
The economic cost can be significant. A new investor entering late in the project may negotiate a preferred return, priority distribution, control rights or a large share of the remaining profit. Existing equity may be diluted, and the governance structure may change at a time when swift decisions are required.
Any equity recapitalisation should be assessed with legal, tax and financial advice. The parties need clear agreement on valuation, priority of existing and new capital, cost-overrun responsibility, guarantees, decision rights, distributions and the final exit.
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Open the feasibility calculators →Exit Strategy 8: Residual-Stock or Inventory Finance
When a residential project reaches completion with unsold or unsettled stock, the developer may refinance the construction facility into a residual-stock facility. This type of loan is secured by the completed properties and provides additional time for orderly sales.
Residual-stock finance can be useful when the original development lender requires repayment at or shortly after practical completion, but retail demand remains sound and the developer wants to avoid discounting stock for a rapid bulk sale. The new facility may reduce the interest rate, extend maturity and remove construction-specific drawdown conditions.
It is not a cure for an unmarketable project. The residual lender will examine completed values, saleability, holding costs, existing contracts, defects, title registration and the proposed selling period. It will usually apply conservative leverage and require sale proceeds to progressively reduce the loan.
Developers should compare the cost of residual finance with the cost of discounting stock. Paying interest for another six or twelve months may be worthwhile if it protects sale prices, but not if demand is weak and values are declining.
How Lenders Test a Proposed Exit
A lender normally tests the exit through several overlapping questions. First, it asks whether the exit is legally and operationally possible. The project must be capable of completion, registration, occupation, sale or leasing within the loan term. Outstanding approvals, easements, infrastructure agreements or title issues can prevent the expected transaction from occurring.
Second, the lender tests value. It considers the independent valuation, comparable evidence and whether the projected price or capitalisation rate is realistic. A lender may adopt a lower value than the developer's feasibility, particularly for specialised assets, unproven locations or projects with limited transaction evidence.
Third, it tests time. The lender looks at the construction program, approvals, sales or leasing period, settlement process and an allowance for delays. A loan term that expires immediately after practical completion provides little protection if titles, occupancy approval or settlements are delayed.
Fourth, it tests liquidity. For a sell-down, this means the number and timing of settlements required to repay debt. For a refinance, it means the amount a new lender is likely to provide and the cash needed to bridge any shortfall. For a one-line sale, it means contract certainty and buyer capacity.
Finally, the lender tests the fallback. It asks what can be done if the preferred exit is unavailable. A good credit submission does not merely state that there is a backup plan; it demonstrates that the backup can work at conservative values and within a realistic time frame.
The Difference Between a Primary Exit and a Fallback Exit
The primary exit is the developer's intended commercial outcome. The fallback exit is the alternative route that protects the lender and project if the primary plan is delayed or no longer viable.
For a townhouse project, the primary exit may be individual sales, while the fallback is a bulk sale of remaining completed stock. For a childcare centre, the primary exit may be refinance and long-term hold, while the fallback is a sale to an investor once the lease has commenced. For a land subdivision, the primary exit may be staged retail lot settlements, while the fallback is the sale of a later stage as an englobo parcel.
The fallback usually produces a lower return than the preferred strategy. That is acceptable. Its purpose is not to maximise profit; it is to demonstrate that the debt can still be repaid under less favourable conditions.
A credible fallback should be quantified. The developer should estimate the likely discount, transaction costs, timing and net debt repayment. A vague reference to 'selling the site' is of limited value if the estimated sale proceeds would not clear the loan.
Worked Example: 24-Townhouse Sell-Down
Consider a 24-townhouse project with a total development cost of $18 million and an expected gross realisation of $22.8 million. The senior development facility has a peak limit of $13.2 million, with capitalised interest and costs included in the facility budget.
The developer's primary exit is the individual sale of all 24 townhouses. The average contract price is $950,000, although values vary by size and position. At practical completion, 18 townhouses are presold and six remain available.
The lender requires a release payment equal to 90 per cent of net sale proceeds until the loan falls below a specified LVR. If the average net amount after GST adjustments and selling costs is approximately $900,000 per settlement, around $810,000 is paid to the lender from each sale. Sixteen settlements would therefore reduce debt by roughly $12.96 million, subject to the actual debt balance and individual release schedule.
The project appears capable of repaying the facility from the contracted settlements, but the developer still needs to plan for defects, settlement timing and purchaser defaults. If four buyers fail to settle, the debt may remain outstanding and the unsold stock must be remarketed or refinanced.
A sensible fallback is residual-stock finance secured by the completed townhouses. If the remaining eight properties are valued at $7.6 million and a residual lender is willing to advance 60 per cent, the maximum facility would be approximately $4.56 million. This fallback works only if the remaining development debt at that point is below the residual facility after fees and accrued interest.
The example shows why the developer should model debt after each settlement rather than relying on total project revenue. The critical question is not whether the project is profitable in aggregate; it is whether enough settlements occur soon enough to clear the short-term loan.
“Two exits are safer than one.”
— The Australian Property Development Handbook
Worked Example: Refinance of a Completed Industrial Asset
Assume a developer completes a multi-unit industrial project at a total cost of $20 million. The completed value is forecast at $27 million, and the development facility peaks at $14.8 million. The developer intends to retain the property once it is leased.
At completion, the project produces forecast net annual income of $1.62 million. A prospective investment lender assesses the leases, tenant quality, remaining incentives, outgoings and market rent. It is prepared to lend the lower of 60 per cent of value and an amount supported by its debt-service test.
At the forecast valuation, 60 per cent produces a maximum of $16.2 million, apparently enough to repay the development debt. However, the lender's valuation adopts $25 million and its serviceability model caps the loan at $14.5 million. After refinance costs, the developer faces a cash shortfall.
The shortfall could be met through additional equity, a partial sale, subordinated debt or a reduction in the development balance before refinance. The developer might also negotiate a longer development-loan tail while further leases commence and income improves.
This example illustrates the danger of treating valuation-based leverage as the only refinance test. Investment debt is also constrained by income and lender policy. The exit must satisfy both value and serviceability.
Common Exit Strategy Mistakes
One common mistake is relying on a single optimistic outcome. A project that only works if every property sells at the forecast price in the forecast month has little resilience. The finance application should show what happens when values soften, sales slow or the refinance is smaller than expected.
Another mistake is confusing project completion with loan repayment. Practical completion may still be followed by occupancy certification, plan sealing, title registration, defect rectification, leasing, valuation and settlement. The facility term must cover the full journey to cash repayment.
Developers also underestimate transaction leakage. GST, selling commission, legal costs, tenant incentives, fit-out contributions, settlement adjustments, taxes and lender release payments all reduce the cash available to repay debt or return equity.
A further mistake is assuming that a refinance is automatic because the completed asset has substantial equity. The take-out lender may use a lower value, require stronger interest coverage or decline the asset type. The borrower may also fail broader serviceability or covenant tests.
Finally, some developers wait until the loan is close to maturity before implementing the exit. Sales campaigns, leasing, valuations, refinance approvals and legal documentation take time. Exit preparation should begin well before completion rather than after the lender starts asking for repayment.
Building Exit Strategy into the Finance Application
The exit section of a finance submission should be concise but evidence-based. It should identify the primary and fallback exits, the expected timing, the parties involved and the amount of debt repaid at each step.
For a sell-down, the submission should include the sales schedule, comparable evidence, current contracts, deposit details, expected settlement dates, selling costs and lender release calculations. For a refinance, it should include projected net income, leasing status, valuation assumptions, target LVR, serviceability, proposed take-out lender type and the developer's capacity to meet any shortfall.
For a one-line sale, the developer should provide details of purchaser interest, the expected transaction structure, required conditions and the net proceeds after all costs. For a staged project, the submission should show stage-by-stage debt, equity, works, sales and cash recycling.
The stronger the evidence, the less the lender needs to rely on unsupported assumptions. Signed contracts, heads of agreement, leasing proposals, broker feedback, comparable transactions and indicative refinance discussions can materially improve confidence, provided they are accurately described and not overstated.
These principles come from our free guide.
Download the handbook →Questions to Ask Before Committing to an Exit
Before selecting an exit, the developer should ask whether the project creates more value through individual sales, a bulk sale or long-term ownership. The answer should account for tax, funding cost, time, management effort and risk rather than gross price alone.
The developer should also ask how much debt will remain at completion, how quickly that debt must reduce and whether there is sufficient time after completion to execute the strategy. A nominal 24-month facility may offer far less selling or stabilisation time once the approval and construction periods are deducted.
Another important question is what minimum value or income the exit requires. This identifies the break-even point at which a refinance or sale no longer clears the debt. Sensitivity testing should show the effect of lower values, slower sales, higher capitalisation rates and reduced rent.
The final question is whether the developer has the financial capacity and decision-making flexibility to change course. An owner with adequate liquidity may be able to hold stock through a weak market. A highly leveraged project with fixed investor deadlines may need to sell quickly, even at a discount.
How BluCow Capital Can Help
A development exit needs to be considered before the funding structure is locked in. Loan maturity, release prices, presale conditions, refinance assumptions, interest reserves and extension rights can all affect whether the intended strategy remains practical.
The objective is not simply to obtain the largest loan. It is to establish a facility that supports construction and provides a realistic path to repayment without forcing the project into an avoidable distressed sale or last-minute refinance.
Developers considering a new project, approaching completion or facing an upcoming facility maturity should seek advice early. The more time available, the greater the range of sale, refinance and recapitalisation options that may remain open.
Frequently Asked Questions
What is the most common property development exit strategy? For residential developments and land subdivisions, individual sell-down is common. For income-producing commercial assets, refinance and hold or a sale to an investor may be more appropriate. The correct strategy depends on the asset and the developer's objectives.
Can a development loan be refinanced before every property is sold? Yes. Completed unsold stock may be refinanced through residual-stock or investment facilities, subject to valuation, leverage, serviceability and lender policy.
What happens if the project is not sold before the loan expires? The developer may need an extension, residual-stock finance, a refinance, additional equity or a sale. Extensions are not automatic and may involve fees, revised pricing and new conditions.
Does a lender require a backup exit? Many lenders expect one, especially where the primary exit depends on future sales, leasing or refinancing. A quantified fallback can materially strengthen the application.
Can retained stock count as profit? Retained stock may represent equity value, but it does not itself repay a short-term facility. The developer still needs sufficient refinance proceeds or other cash to clear the debt.
Is a bulk sale always worse than retail selling? Not necessarily. The headline price may be lower, but the bulk sale can reduce interest, marketing, settlement and market risk. The correct comparison is based on net proceeds and timing.
When should exit planning begin? It should begin during acquisition and feasibility, before the funding structure is finalised. Implementation should start well before practical completion or maturity.
Conclusion
A property development exit strategy is the practical plan for turning a completed or de-risked project into cash, long-term ownership or both. It is also the lender's repayment plan, which is why it has a direct influence on finance approval and facility terms.
The strongest strategies are realistic, evidence-based and flexible. They account for net proceeds rather than gross revenue, allow time for post-completion processes and include a workable fallback. They also recognise that a refinance is a new credit decision, not an automatic extension of the development loan.
Whether the intended outcome is a retail sell-down, institutional sale, refinance and hold, staged release or hybrid exit, the plan should be modelled before the facility is signed and reviewed throughout the project. A development that knows how it will repay its debt is better placed to manage change, protect equity and avoid being forced into the wrong transaction at the wrong time.
Disclaimer
Disclaimer: This article provides general information only and does not constitute financial, credit, legal, tax or investment advice. Lending policies, valuations, market conditions and project outcomes vary. Developers should obtain advice appropriate to their circumstances before entering a transaction or relying on a proposed exit strategy.