Construction lending carries more risk than most commercial lending. Repayment depends on the project being finished and producing cash flow from a sale, lease or permanent take-out loan, and during construction the collateral is work in progress while guarantors may lack the outside net worth or income to repay.

This construction lending and credit administration webinar explains how to reduce that risk and extend construction loans safely and profitably. You'll see how to evaluate the developer's ability to repay, underwrite the project so the bank is repaid in full and on time, and monitor the credit exposure and construction activity.

Topics include construction lending policy, sources and uses, hard and soft cost review, LTV, LTC, DCR, interest reserves, bonding and the role of real estate construction administration (RECAD). The course level is basic.

WHY SHOULD YOU ATTEND?

Construction loans fail when the developer, the structure or the monitoring is weak. This session gives lenders a clear framework for assessing borrowers, structuring loans and managing problems before they become losses.

It suits commercial real estate lenders and underwriters, real estate credit administration staff, credit policy, credit and risk managers, credit approval officers, chief credit officers, senior lenders, bank directors, CEOs, presidents and board chairs.

AREA COVERED

1. Evaluating the developer's ability to repay

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

2. Underwriting and structuring the construction loan

• Construction lending policy: defining a construction loan and the information and documents needed
• Sources and uses, hard and soft cost review and appraisal review
• LTV, LTC and DCR
• Interest reserves
• Bonding

3. Monitoring credit exposure and construction activity

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

LEARNING OBJECTIVES

• Explain why construction lending is riskier than other commercial lending
• Evaluate a developer's and contractor's ability to complete and repay a project
• Underwrite a construction loan using sources and uses, cost reviews, appraisal review, LTV, LTC and DCR
• Structure loans with minimum equity, interest reserves and bonding
• Describe the role of RECAD in inspections, disbursements, retention and liens
• Manage change orders, construction problems and problem construction loans

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