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Fundamentals of Construction Lending and Real Estate Credit Administration
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
Overview of the webinar
This webinar addresses how to mitigate the higher risk, and it offers advice and guidance in how to extend construction loans safely and profitably with appropriate analysis and underwriting and structuring—LTV, LTC, minimum equity, bonding, etc.
Once the construction loan is extended, it must be administered by real estate credit administration (RECAD), so the session also addresses the role and activities of real estate construction administration (RECAD)—sources & uses, costs review, inspections, disbursements, retention, liens, construction problem mitigation.
Who should attend?
- Commercial real estate (CRE) bankers
- Lenders
- CRE credit approvers
- Credit analysts
- Loan review officers
- Construction administrators
Why should you attend?
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
Faculty - Mr.Dev Strischek
A frequent speaker, instructor, advisor and writer on credit risk and commercial banking topics and issues, Martin J. "Dev" Strischek is 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 more appropriate for privately held firms. He also serves as the PCC’s representative to FASB’s Credit Losses Transition Resource Group supporting the new current expected credit loss (CECL) standard. Dev is the former SVP and senior credit policy officer at SunTrust Bank, Atlanta. He was responsible for developing, implementing, and administering credit policies for SunTrust’s wholesale lines of business--commercial, commercial real estate, corporate investment banking, capital markets, business banking and private wealth management.