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 the 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, 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 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 the 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 on how to extend construction loans safely and profitably:
• Construction lending policy defines a construction loan, outlining the necessary information and documentation needed to evaluate a construction loan, monitoring loan performance
• Appropriate underwriting and structuring, 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