Evaluating, Underwriting, and Lending to Construction Contractors

About the Course

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

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

Therefore, participants will 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, chargebacks

Causes of and cures for construction problems

Problem asset management of construction loans

Course Objective

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

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

Construction lending policy—defining a construction loan, outlining necessary information and documentation needed to evaluate construction loan, monitoring loan performance

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

Who is the Target Audience?

Commercial Real Estate (CRE) lenders, underwriters

Real estate credit administration team members

Credit policy managers

Credit managers

Credit Risk Managers

Credit approval officers

Risk Managers

Enterprise Risk Managers

Chief Credit Officers

Senior Lenders

Senior Lending Officer

Bank Director

Chief Executive Officer

Bank President

Board Chairman

entry level junior staff, mid-level staff

Basic Knowledge

No prior knowledge is required