Construction Lending And Real Credit Administration: Evaluating, Underwriting, And Monitoring Construction Loans

Recorded Session
60 Minutes

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 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

WHY SHOULD YOU ATTEND?

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, and 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 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

AREA COVERED

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, 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, and how to satisfactorily monitor and manage the credit exposure and the construction activity.
Course Level - Basic/Fundamental

LEARNING OBJECTIVES

This webinar addresses how to mitigate the higher risk, and it offers advice and guidance on 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 WILL BENEFIT?

  • 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

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, and 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 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

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, 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, and how to satisfactorily monitor and manage the credit exposure and the construction activity.
Course Level - Basic/Fundamental

This webinar addresses how to mitigate the higher risk, and it offers advice and guidance on 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
  • 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
Currency:
Webinar Option
Transcript (PDF Transcript of the Training)
Downloadable Recorded Session
DVD/USB

Speaker Profile

ins_img Dev Strischek

A frequent speaker, instructor, advisor and writer on credit risk and commercial banking topics and issues, Martin J. "Dev" Strischek principal of Devon Risk Advisory Group based near Atlanta, Georgia.  Dev advises, trains, and develops for financial organizations risk management solutions and recommendations on a range of issues and topics, e.g., credit risk management, credit culture, credit policy, credit and lending training, etc.  Dev is also a member of the Financial Accounting Standards Board’s (FASB’s) Private Company Council (PCC).  PCC’s purpose is to evaluate and recommend to FASB revisions to current and proposed generally accepted accounting principles (GAAP) that are …

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