Construction Lending and Real Credit Administration (RECAD): Evaluating, Underwriting, and Monitoring Construction Loans

On Demand Course

Instructor: Dev Strischek

Duration: 1 HR

What You'll Learn

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

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

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

Learning Objectives:

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

About the Author:

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 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. Prior to SunTrust, Mr. Strischek was chief credit officer for Barnett Bank’s Palm Beach market. Dev is also a member of the Financial Accounting Standards Board’s (FASB’s) Private Company Council (PCC).

On-Demand Course