Restructuring Development Loans: Negotiating With Your Lender

Restructuring a development loan becomes necessary when the original terms of the facility can no longer be met but the underlying project retains sufficient value to justify continued investment. The triggers for restructuring are varied: cost overruns that have exhausted the approved budget, programme delays that push the project past the facility's maturity date, market softening that reduces the projected GDV below the level needed to repay the debt, or a combination of these factors. In each case, the existing facility terms no longer align with the project's realistic trajectory, and new terms must be negotiated to give the project a viable path to completion.

Restructuring is fundamentally different from default and enforcement. Where default leads to the lender exercising its rights to recover its debt, restructuring involves a consensual modification of the facility terms to reflect changed circumstances. The lender agrees to adjust the terms because it believes the restructured facility offers a better recovery prospect than enforcement. The developer retains control of the project and continues to manage it towards completion and exit. This mutual benefit is what makes restructuring possible — and why it should be pursued energetically by any developer whose project is under stress.

In our experience, the window for effective restructuring opens when problems are first identified and closes when the lender loses confidence in the borrower's ability to manage the project. Once the lender has decided to enforce, restructuring becomes extremely difficult — the lender's legal and credit teams have committed to an enforcement strategy, and reversing that decision requires compelling evidence that the project can still deliver a satisfactory outcome under the borrower's management. The lesson is clear: seek restructuring early, not as a last resort.

The simplest form of restructuring is a term extension, which gives the borrower additional time to complete the build or exit the development. Term extensions are appropriate where the project is fundamentally sound but the programme or sales timeline has slipped beyond the original maturity date. The extension may be accompanied by a modest increase in the interest rate (typically 0.5% to 1.5% per annum above the original rate) and an extension fee (typically 0.25% to 1% of the outstanding balance per month of extension). On a £2,800,000 facility, a three-month extension at 0.5% per month plus a 1% interest rate increase adds approximately £42,000 in extension fees and £7,000 per month in additional interest — a significant but manageable cost.

A facility increase involves the lender advancing additional funds to cover cost overruns or unexpected expenses. This is appropriate where the development remains viable at the revised cost level and the developer has contributed additional equity to share the burden. The facility increase may be structured as an additional tranche within the existing facility or as a separate supplementary facility. The terms of the additional advance are typically more expensive than the original facility, reflecting the increased risk.

A covenant reset involves amending the financial covenants to reflect the project's revised parameters. If falling values have pushed the LTGDV above the covenant threshold, the lender may agree to increase the covenant level from (for example) sixty-five percent to seventy percent, provided the project still demonstrates adequate profitability at the revised GDV. Covenant resets are usually accompanied by enhanced monitoring requirements and may require the developer to provide additional security.

More complex restructuring may involve converting the facility type — for example, converting a development finance facility to a development exit facility once construction is complete, or converting part of the debt to mezzanine (accepting a subordinated position on part of the balance in exchange for participation in the project's upside). These structures require creative thinking and experienced negotiation, and they are most commonly seen on larger facilities where the absolute amounts at stake justify the additional complexity.

Successful restructuring negotiations require thorough preparation. The developer must present the lender with a compelling case that the project has a viable future under restructured terms, and that the restructured outcome offers a better recovery for the lender than the alternative of enforcement. This case must be supported by detailed financial analysis, current market evidence, and a credible revised plan for completion and exit.

The core document for any restructuring negotiation is a revised development appraisal that honestly reflects the project's current position. This appraisal should show: the total expenditure to date (including all costs, fees, and capitalised interest), the cost to complete (based on current contractor quotes or QS estimates), the projected GDV (based on current comparable evidence, not the original assumptions), the projected profit on both an absolute and percentage basis, and a sensitivity analysis showing how the project performs under different GDV and cost scenarios. The appraisal must be realistic — lenders see through optimistic projections and will lose confidence in a developer who presents unrealistic numbers.

The second key document is a revised programme showing the anticipated completion date and exit timeline, with supporting evidence from the contractor or project manager. The third is an updated sales or exit strategy, supported by current market evidence — agent appraisals, comparable transaction data, and (where available) evidence of buyer interest such as viewings, offers, or reservations.

Before entering negotiations, assess the lender's likely position and identify the key concessions you need. Prioritise your requests — for example, a term extension may be more important than a reduction in default interest. Understand what the lender is likely to demand in return — additional equity, additional security, enhanced reporting, or a higher interest rate. Having this analysis prepared in advance allows you to negotiate from a position of informed flexibility rather than reactive desperation. Contact our deal room to discuss your restructuring strategy — we bring significant experience to these negotiations and can often achieve outcomes that developers would struggle to achieve independently.

The most effective negotiation strategy is to present the restructuring as a commercially rational decision for the lender, not an act of mercy towards the borrower. Frame every proposal in terms of the lender's recovery: "A three-month extension at revised terms gives you a projected recovery of one hundred percent of principal plus £150,000 in additional fees and interest, compared to a receivership that our analysis suggests would recover ninety-two percent of principal after costs." Lenders are commercial entities, and they respond to commercial arguments.

Bring something to the table. A restructuring proposal that asks the lender to make all the concessions while the developer contributes nothing additional is unlikely to succeed. The developer should be prepared to offer one or more of: additional equity injection, additional security (such as a second charge over personal property or other development assets), an increased interest rate, an enhanced personal guarantee (or a new guarantee from a third party), and a commitment to accelerated sales activity (including reduced asking prices if appropriate).

Use your broker as a negotiating intermediary. We understand the lender's internal processes, their credit team's decision-making framework, and the commercial pressures they face. We can frame proposals in language the lender understands, anticipate objections, and propose solutions that address the lender's concerns while protecting the developer's interests. Many of the most successful restructurings we have arranged were achieved through multiple rounds of negotiation, each refining the proposal until both parties were comfortable with the revised terms.

Be prepared for the negotiation to take time. Unlike initial facility arrangements, which can complete in two to four weeks, restructuring negotiations often take four to eight weeks because the lender's credit team must approve the revised terms, the legal documentation must be amended, and additional conditions may need to be satisfied. During this period, continue managing the project diligently — demonstrating that you are progressing the build, managing costs, and advancing the exit strategy. A developer who is seen to be actively managing the project during restructuring negotiations reinforces the lender's confidence in the restructured outcome.

Restructuring a development loan is a specialist skill that benefits significantly from professional advice. The key advisors are: a development finance broker with restructuring experience (who manages the lender relationship and prepares the restructuring proposal), a solicitor with experience in facility amendments and default management (who negotiates the legal documentation), and potentially a quantity surveyor (who provides an independent cost-to-complete assessment) and a RICS valuer (who provides an independent valuation to support the restructuring case).

The cost of professional advice during a restructuring is typically £15,000 to £40,000, comprising broker fees, legal fees, and QS and valuation costs. This is a significant expense for a developer already under financial pressure, but it is a fraction of the cost of an unsuccessful restructuring (which leads to enforcement) or a poorly negotiated restructuring (which may cost the developer significantly more than necessary in additional fees, interest, and equity). In our experience, professional advice typically saves developers multiples of its cost through better terms, avoided enforcement costs, and preserved equity.

The solicitor's role is particularly important in a restructuring. The revised facility terms must be documented in a formal amendment or supplement to the existing facility agreement, and the terms must be carefully drafted to protect the developer's interests as well as the lender's. Key points to watch for include: the scope of any waiver (does it cover past breaches only, or does it also provide protection against future breaches within a specified range?), the conditions attached to the restructured facility (are they achievable and within the developer's control?), and the treatment of default interest (is the accrued default interest being capitalised into the loan balance, or is it being waived as part of the restructuring?).

In some complex restructuring situations, it may be beneficial to engage a turnaround consultant — a specialist professional who works with the developer to stabilise the project, renegotiate contracts, and implement operational improvements that support the restructured facility. Turnaround consultants are most commonly used on larger developments (with a GDV above £10,000,000) where the operational complexity justifies the additional cost. For smaller developments, the broker and solicitor working together can usually provide the level of advice and support needed to achieve a successful restructuring.

Restructuring becomes significantly more complex when the capital structure includes both senior and mezzanine debt. Any changes to the senior facility terms must be considered in the context of the intercreditor agreement, and the mezzanine lender's consent may be required for certain amendments. Conversely, if the mezzanine facility also needs to be restructured, the senior lender must agree to any changes that affect its priority position.

Common restructuring scenarios in dual-lender structures include: the senior lender extending its facility term (which may require the mezzanine lender to also extend, or to agree that its facility remains subordinated for the extended period), the senior lender increasing its facility (which requires the mezzanine lender to agree to subordinate to a larger senior debt), the mezzanine lender converting some or all of its debt to equity (which reduces the total debt burden and improves the senior lender's LTV position), and both lenders agreeing to a standstill while the developer implements a revised business plan.

The dynamics of restructuring with two lenders are inherently more complex because the lenders' interests may diverge. The senior lender's priority position means it is more likely to be repaid in full, even in a downturn, so it may be less motivated to agree to concessions. The mezzanine lender, whose recovery depends on the project achieving a higher value, may be more willing to make concessions (such as reducing its interest rate or extending its term) to keep the project alive. The developer must navigate these different motivations and propose a restructuring that gives each lender enough to secure their agreement.

We have significant experience in restructuring dual-lender capital structures and understand the dynamics of intercreditor negotiations. If your development has both senior and mezzanine debt and you are considering a restructuring, contact our deal room at the earliest opportunity. The earlier we are involved, the more options we can explore and the greater the likelihood of achieving a restructuring that preserves the developer's position.

A successful restructuring is not the end of the process — it is the beginning of a new phase that requires disciplined execution. The restructured facility will typically contain enhanced monitoring and reporting requirements, tighter milestones, and specific conditions that must be met within defined timeframes. Failure to comply with the restructured terms will be treated far more seriously than a first-time breach, because the lender has already demonstrated forbearance and will expect the developer to deliver on their commitments.

Implement a rigorous monitoring framework that tracks compliance with every element of the restructured facility. This includes: financial covenant metrics (LTV, LTGDV, LTC) calculated and recorded monthly, programme milestones tracked weekly, cost expenditure compared to the revised budget weekly, and sales or exit activity reported monthly. Share this information proactively with the lender — do not wait to be asked. Demonstrating that you are on top of the project and delivering against the restructured plan builds confidence and reduces the likelihood of the lender reverting to enforcement.

If the project continues to face challenges after the restructuring — for example, if costs overrun again or sales remain slower than projected — communicate with the lender immediately and propose adjustments. A second restructuring is possible but significantly more difficult to achieve than the first, because the lender's confidence will have been further eroded. The best way to avoid a second restructuring is to implement the first restructuring plan meticulously and deliver the outcomes you committed to.

We stay closely involved with our clients throughout the post-restructuring period, providing ongoing monitoring support, managing lender communications, and advising on any adjustments needed as the project progresses. This continuity of support ensures that the restructured facility remains on track and that any emerging issues are identified and addressed before they become material. If your development loan needs restructuring, submit your project through our deal room for a confidential assessment of your options.