116506 Resource 78777 78860 78860 1140359059735 1140359586668 Controlled Construction Risk in Commercial Real Estate Construction Lending

Construction Risk is the Risk That the Project Will Not Get Completed

<p>There are two major categories of risk associated with commercial construction lending - construction risk and market risk.&nbsp; Today we will talk about <strong><em>construction risk</em></strong>.</p><p>Construction risk is the risk that the project will not get completed on on-time and on-budget.&nbsp; A lot of&nbsp;things can go wrong during construction.</p><p>There could be a delay in getting supplies.&nbsp; Right now, because of all of the reconstruction&nbsp;going on in New Orleans and on the coast of Mississippi, building materials&nbsp;are in short supply.&nbsp; Contractors are reporting long delays in receiving plywood and windows.&nbsp; Another construction danger is a labor&nbsp;interrruption.&nbsp;&nbsp;Powerful trade unions have been known to strike during the construction of huge projects because the developer is particulary&nbsp;vulnerable when he is carrying a one hundred&nbsp;million dollar construction loan.</p><p>Weather&nbsp;and fires are always a serious risk.&nbsp; An early winter&nbsp;or a particuarly rainy&nbsp;spring can delay construction&nbsp;by many weeks.&nbsp; Vagrants often move in to&nbsp;partially completed buildings&nbsp;and start small fires to keep warm.&nbsp; These fires can spread out of control.</p><p>Cost overruns are common in construction, particularly right now.&nbsp; Contractors everywhere are defaulting on their fixed price bids because of unexpected increases&nbsp;in construction materials.&nbsp; Thousands of projects under construction in America are coming in 20% to 30% higher in cost than originally projected because of&nbsp;the skyrocketing&nbsp;cost of oil and building materials.&nbsp; Steel and cement&nbsp;have soared in price in recent years because of all of the new construction going on in China.</p><p>Environmental risk is serious too.&nbsp; Suppose a leaking <strong><em>underground storage tank</em></strong> (UST) is discovered during demolition?&nbsp; The cost to remediate a leaking UST can be hundreds of thousands of dollars.&nbsp; Sometimes environmental activists&nbsp;can bring a construction project to a halt because of the sudden discovery of some endangered species.</p><p>The lender who assumes the construction risk is the construction lender, who is normally a lender local to the area.</p><p>You can find hundreds of commercial construction lenders on C-Loans.com.</p><p /><p>&nbsp;&nbsp;&nbsp;&nbsp;</p> 9 application/xml false commercial construction lender commercial construction loan commercial financing commercial loan commercial mortgage commercial real estate loan market risk Apply to Hundreds of Commercial Construction Lenders http://www.c-loans.com/onlineapp Mozilla/4.0 (compatible; MSIE 6.0; Windows NT 5.1; SV1; .NET CLR 1.1.4322) 71.50.246.209 71.50.246.209 GBlackburne false true false false true 198508 false false true false false false true 78777 blog blogsite/CLoans/web