BankerCollege

Most bankers acknowledge that construction lending is riskier than other types of commercial lending because:

• Repayment ability depends on successful completion of the construction before the project can generate cash flow from the sale of the finished property, from rental or lease of the real estate, or from permanent take-out refinancing
• During the construction period, the collateral is literally work-in-progress and often the guarantors do not have sufficient outside net worth or income to pay off the loan

This lending webinar addresses how to mitigate the higher risk, and it offers advice and guidance in how to extend construction loans safely and profitably:

• Appropriate underwriting and structuring—LTV, LTC, minimum equity, bonding, etc.
• Role and activities of real estate construction administration (RECAD)— sources & uses, costs review, inspections, disbursements, retention, liens, construction problem mitigation

Learning Objectives:

Learn how to evaluate the developer’s ability to repay the construction loan.

• Developer’s background and expertise
• Contractor’s background and expertise
• Developer’s legal structure
• Owner’s minimum equity,
• Repayment ability from project cash flow, collateral, guarantees

Develop an appropriate underwriting of the construction project to ensure the resulting structure ensures the bank will be repaid in full, on time, and as agreed.

• Sources and uses, cost review of hard costs & soft costs, appraisal review
• LTV, LTC, DCR
• Interest reserves
• Bonding

Explain how to satisfactorily monitor and manage the credit exposure and the construction activity

• Role of and activities performed by real estate construction administration (RECAD)
  • Inspections and disbursements
  • Reallocations and change orders
  • Retention, punch lists, charge-backs
  • Causes of and cures for construction problems
• Problem asset management of construction loans