April 01, 2006

Commercial Construction Loans and Renovation Risk

Invariably the Cost to Renovate a Commercial Building Ends Up Being Much Higher Than Scheduled

Did you know that it is far riskier for a commercial construction lender to finance the renovation of an existing building than it is to finance the construction of a brand new commercial building? "That's counterintuitive," you say. "With an existing building the walls and the foundations are already completed. How can it possibly be more risky?"

The answer lies in the fact that the moment you open up the walls or the floors, the renovator invariably finds all sorts of problems. The wiring or plumbing won't be up to code. There might be water damage that was not visible until the walls or floors were opened. There might be termite damage or hidden aesbestos.

There is almost always some major new expense that is not covered in the construction budget. This risk is known as renovation risk.

In contrast, on new construction projects the cost of the electrical, plumbing, and rough carpentry is already built into the budget. There are far fewer unpleasant surprises.

You can apply to hundreds of commercial construction lenders in just four minutes using C-Loans.com.