Righting the Ship on Distressed Construction Loans

As the Lender of a Distressed Construction Project, Decisions May Be Needed to ‘Right the Ship’

Published in GlobeSt.com on Jan. 18, 2024

By Brian Ward, Technical Director – Construction Services Group,
& Robert Rafanelli, Senior Director, Construction Services

With challenges plaguing the construction industry over the last few years—material shortages, supply chain disruptions, shortage of qualified labor—it’s hardly surprising that so many construction projects have gotten off track. If you are the lender on a distressed construction project, you may be faced with the dilemma of taking over the project or adding more capital to “right the ship.” This decision requires a thorough understanding of current project status and what is required to bring the project to successful completion. Below are some key considerations for lenders in this scenario.

Understanding the Current Project Status

Assessing the status of a construction project goes well beyond visual inspection. In addition to determining how much of the project plan has been executed, it is critically important to dig into project documents and interview relevant parties to determine the following:

• Quality: Has the work completed to date been executed according to plan, and is the quality of execution satisfactory?
• Compliance: Have all required permits been procured, and all required inspections passed? Does the project comply with all applicable laws, such as zoning and accessibility?
• Financial: Are all contractors and suppliers paid current? Have any liens been filed?
• Immediate Risk: If the project is stalled, is the site vulnerable to theft, vandalism, or exposure to the elements?

If a lender lacks sufficient internal resources to thoroughly investigate these concerns, a qualified construction consultant can provide a Construction Status Review.

To learn more, read the full article.