Fundamentals of Construction Lending and Real Estate

Course Description:

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 loa

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, 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

Learning objective :

This webinar addresses how to mitigate the higher risk, and it offers advice and guidance in 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 lenders, analysts, and credit approvers

• Other commercial lenders, private bankers

• Loan review officers, auditors

Instructor Profile:

Dev Strischek, a frequent speaker, instructor, advisor and writer on credit risk and commercial banking topics and issues, Dev is principal of Devon Risk Advisory Group and engages in consulting, speaking and training on a wide range of risk, credit, and lending topics. As 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. He also spent three years as managing director and credit approver in SunTrust's Florida commercial lending and corporate investment banking areas, respectively. Prior to SunTrust, Dev was chief credit officer for Barnett Bank's Palm Beach market. Besides stints at other banks in Florida, Kansas City, and Ohio, Dev's experiences outside of banking include CFO of a Honolulu construction company, combat engineer officer in the U.S. Army, and college economics instructor in Hawaii, Missouri, and Florida. A graduate of Ohio State University and the ABA Stonier Graduate School of Banking, he earned his M.B.A. from the University of Hawaii.

Dev serves as an instructor in the Stonier Graduate School of Banking and the American Bankers Association's (ABA) Commercial Lending. His school, conference, and workshop audiences have included participants drawn from the ABA, RMA, OCC, Federal Reserve, FDIC, FFIEC, SBA, the Institute of Management Accountants (IMA) and the AICPA. Dev has written about credit risk management, financial analysis and related subjects for the Risk Management Association's RMA Journal, and other business professional journals. He is the author of Analyzing Construction Contractors and its related RMA workshop. A past national chair of RMA and former Florida Chapter president, Dev served as a member of the RMA Journal's advisory board, and he has consulted on credit risk issues with banks in Morocco, Egypt, and Angola through the US State Department's Financial Service Volunteer Corps (FSVC). He also served on the Private Company Council (PCC) of the Financial Accounting Standards Board (FASB); the PCC reviews current and proposed generally accepted principles (GAAP) and recommends revisions that simplify their use for privately held organizations.