Construction has started picking up more rapidly in recent months.  According to Forbes, construction starts in January were up 10% nationally from January 2011, and some major metros in particular like NYC, Dallas, Houston, Phoenix are seeing an uptick in new construction. 

In the past, construction lenders have looked to independent, third-party consultants to help manage construction lending risk.  Having gone through the recession and construction halt, many lenders are understaffed and the need to rely on 3rd party firms may be greater than ever.   With industry specialized expertise most lenders don’t have, 3rd party consulting firms have become a crucial asset to any commercial lender.  Construction Risk Management is no exception.

So what exactly do Construction Risk Management firms do?

Construction Risk Management firms offer a wealth of tools to help keep construction projects on track and can even save lenders loan dollars, from project start to finish – i.e. from the initial review of a project, to monitoring for progress during the project, to administering funds all the way through a project, to estimating the cost to complete a project that has halted.  

One important distinction of Construction Risk Management is that it is proactive versus reactive.  As an example, a performance bond is reactive and only kicks in once a default has happened.  To the contrary, tools such as Funds Control combined with Construction Progress Monitoring, where each draw request is reviewed and disbursed by a 3rd party consulting firm only if the project is meeting the progress schedule, is proactive and can identify problems early on which allows for corrective action.  Another way to proactively manage risk is thorough Contractor Evaluations.

Another important benefit is that the thorough documentation that is inherent in the various Construction Risk Management services can greatly increase transparency to bank regulators and significantly help during audits. 

Upcoming Construction Risk Management Webinar

My colleague Joey Bonin and I are putting on a free webinar this Thursday the 19th at 2pm eastern covering the full range of Construction Risk Management tools available and how lenders can put them to use.  Click here to register, or feel free to email me with any questions at [email protected].