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November 14, 2019

What’s Hot Today in Construction Risk Management

By Partner ESI

Construction Lender Risk Management Roundtable                                                                               
  Bringing industry leaders together to share ideas, issues,
nd resolutions that construction lenders face daily.
                                                            March 9-11, 2020  |  About CLRM
Construction Lending Outlook: Strong Sentiment and
Fundamentals Amid Growing Uncertainties
Many lenders have turned to construction lending in the search for increased yield, but increasing uncertainties have made it harder to predict and manage construction risks. Development is still thriving, and there is no shortage of construction projects available for financing; however, developers and lenders are becoming more cautious. Strategies to control costs, delays, and other sources of default have become even more important in underwriting and managing new construction loans. Click here for Bill Tryon’s construction lending market analysis, featured in GlobeSt.
Four Essential Funds Control Functions
The finances and complex logistics of carrying out construction projects carry risks for all its stakeholders. Default due to mismanagement of funds is one of the biggest risks on construction projects and involves everything from timely payments to sub-contractors and suppliers, to payment distribution for verified milestones, to tracking change orders, especially if they are over budget. In this GlobeSt article, Partner’s Ali Schaal and Angela McDonnell discuss the use of third-party firms for funds control, one of the most effective services for lenders to mitigate risk over the lifetime of a project. Aside from ensuring completion on budget and on schedule, it also increases transparency to bank regulators, particularly if there is an
Before Issuing a Construction Loan, Examine Costly Risks
Lending for real estate construction carries unique risks. Many variables can affect the successful completion of the project such as inadequate plans, an unqualified GC, and unrealistic milestones. Lender concerns during the pre-closing period include weighing the value of a completed property to value of the loan, and ways this value could be diminished. A Document and Cost Review (DCR) can help mitigate these risks by proactively preventing costly mistakes. In this article, Partner’s Leon Kouyoumdjian explains the fundamental components of a DCR, which help provide security for stakeholders about a project’s viability.
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