Project exit strategy establishes the plan to terminate the developer's involvement in a project, which is commonly upon completion of the construction and handover of the property. Project exit marks the termination of the developer's involvement in the development project.
Project exit can involve various interested parties – the developer, brands, asset managers, industry consultants, and real estate brokers. It requires knowledge of property operations and capital formation for the seller to make the best value proposition and for interested parties to evaluate the offer.
Developers frequently use forward sales, in which the property is sold before project completion, or forward financing, to achieve certainty of funding for the project. The sale proceeds may be used for general business needs, to reduce the developer's outstanding debt, or to invest in new projects.
Several legal and commercial issues arise from project exit. For a hotel, these include the relationships between the property developer and the operator as well as the relationships with employees, guests and suppliers.
Transaction due diligence must be performed by buyers and sellers to address issues and risks in the transaction and to overcome obstacles. The risks when exiting a hotel project or selling the property include:
- Entity risks – Risks borne by a certain participant or stakeholder in a project or undertaking – developer, lender, operator, investor, contractor, supplier, government entity or other entity;
- Transaction risks – Operational, financial, country/political, legal, environmental, regulatory, force majeure and other risks resulting from the transaction itself; and
- Project exit risk – The inability of the developer or an investor to exit from a project without incurring a loss.
A project is said to be sustainable when it adheres to sustainable development principles and practices during its development and use throughout its whole-life cycle. For sustainability certification prior to the developer's exit, sustainability assessment is conducted to support the property's development and evaluate adherence to sustainable development practices and principles in its construction and operation.