Lenders
The salient concerns of most construction lenders
center around cost containment, timely construction completion,
and a successful execution of the project’s exit strategy.
In an effort to minimize project cost growth,
I have established two key contracts, which allocate
a reasonable proportion of the Developer’s risk to
the architect and contractor. Both contracts are highly
modified AIA forms. The architect’s contract is a fixed
price all inclusive format. The end result of modifying
the AIA-111 and A-201 construction contract, is a guaranteed
maximum price contract that greatly reduces cost growth
to the developer, and his largest partner, the construction
lender. When oil prices escalate, and construction
commodity prices present challenges, sound contracts
make a significant difference.
Getting construction projects completed as per
the represented schedule is contingent upon competent
preconstruction planning and preconstruction meetings.
With all consultants and key sub contractors present,
meetings focus on exposing difficulties, challenges
and conflicts, which invariably increases efficiency
and decreases disputes.
When costs are consistent with the budget, and
construction is completed on schedule, risks to developments
are reduced. However, there is no substitute for initial
conservative underwriting. My experience indicates
that conservative profit assumptions serve the development
and the principals best. In conjunction with this policy
of conservative. underwriting, I prefer development
projects that allow for multiple exit strategies. An
example would be an industrial park subdivision, where
buildings could be sold to users, leased, sold as investments,
or sold as finished lots.
I believe lenders appreciate my diligence and
personal daily involvement.
