Where We Go From Here: Construction Financiers Convene for 2017 CLRM

Next week, key executives from the construction finance industry convene for the 4^th annual Construction Lenders Risk Management (CLRM) Roundtable. The event, held this year in San Diego on March 6-8, brings together construction lenders, investors and risk managers from across the nation as well as technology firms, regulators and service providers relevant to the construction finance industry.

“CLRM is the forum for lenders and investors involved in construction projects,” said Bill Tryon, Director of Strategic Development for Partner Engineering and Science, Inc. who is the presenting sponsor of the event. “There is no other group that dissects risk from such a wide range of perspectives and particularly focuses on asset-level construction and engineering risks that can affect the success of a project or investment.” The CLRM organization was founded in 2013 as a forum to share insights, concerns and strategies to manage construction risks, regulatory requirements and current issues to protect net income and assets.

Key in this year’s CLRM Roundtable agenda are discussions around where the construction industry is headed and how to navigate a new landscape of uncertainties and emerging issues. Panels will focus on:

Regulatory drivers: What do bank examiners look for? How might the new administration and congress impact construction and finance? Representatives from the Federal Reserve Bank and Freddie Mac will be present to discuss the regulatory perspective, as well as changes that are afoot or ahead, such as:

• Will the HVCRE regulation go away and what would that mean for construction lending?
• How could policy changes affect construction labor supply and cost of materials?
• What other proposed changes could impact construction financing, such as doing away with the EB5 Immigrant Investor Program and Low-Income Housing Tax Credit (LIHTC) programs?

Risk management: Risky construction lending was a major contributor to bank failures in the last crisis. Amidst concerns about concentration and risk in commercial real estate, what new and established risk management practices are lenders and investors employing to avoid the mistakes of 10 years ago?

• What role do newer risk management approaches like Completion Commitments have in today’s construction finance market?
• How much oversight is enough? How much is too much in a competitive market? How often should Construction Progress Inspections be conducted? What about other loan administration practices like Funds Control and Disbursement?
• How are bonds being utilized as a risk management tool?
• With urban infill and redevelopment on the rise, more construction projects are occurring on sites that are contaminated by past or surrounding uses. How should environmental challenges like contaminated soil or groundwater be handled during construction?

Emerging issues: What emerging issues should the construction and lending community have on their radar?

• How will FASB changes impact how equipment and other facility improvement costs are reported for tax purposes? Would this impact decisions regarding renovations or improvements to facilities?
• Handling flood risk and flood insurance in a changing climate
• Addressing seismic ordinances that are increasingly being adopted by municipalities

Technology: How are data and technology improving construction and construction lending?

• How are workflow and reporting platforms improving transparency and decision making?
• How to get the best estimate of building and construction costs?
• What are the latest “cool tools” being put to use on construction sites?

In a broad sense, the 2017 CLRM Roundtable will serve to further the mission of promoting a common understanding of construction risks and the development of best practices among investors and lenders. “You can’t manage a risk if you don’t know it’s there, but risks can be addressed in a number of ways,” said Tryon. “Risk appetites vary. Lenders, developers and investors view risks from different perspectives. Each may deal with risks differently, but by sharing perspectives they are able to make more informed decisions.”

For more information on the CLRM Roundtable or organization, please contact Bill Tryon.