DCMI Mid-Atlantic: Construction Lenders’ Due Diligence Often Key To Project’s Success

WARRENTON, Va.--(BUSINESS WIRE)--As the economy strengthens, real estate development lending is picking up steam. But for 80 percent of the projects, improving economic times won’t remove the biggest hurdle they will face, said Val Riccardi, a principal with real estate consultancy DCMI Mid-Atlantic, Inc.

“The only way you can say you know if the deal is in the best interest of the bank is to comprehensively analyze the guts of the project.”

That obstacle? A lack of adequate due diligence.

“Four out of five real estate construction borrowers are not prepared to navigate the process effectively,” said Riccardi, who has nearly two decades of experience in construction project analysis. “Lenders must look, and look closely, before they leap.”

Lenders face bigger challenges as the market creates opportunities for new types of borrowers. Lenders are seeing more requests from non-traditional sources, including speculators looking to renovate and flip properties and franchisees that find cheap purchase prices more attractive than ground leases.

Some basic due diligence helps lenders ensure their projects are in the 20 percent of deals that are well-positioned for completion, Riccardi said.

Due diligence starts in the pre-construction phase, with questions such as, Does the project conform to an allowable use? Are the plans adequate and in compliance with the International Building Code? Are there geotechnical conditions that may impact site improvements? Does the construction contract protect the bank?

Comprehensive due diligence doesn’t end when work begins. On-site progress monitoring inspections are part of a comprehensive due-diligence package. Issues to monitor during construction include requisition analysis, permit status, disbursement processing, and adherence to construction standards.

“Even the consummate developers see deals fall apart in the construction phase because they didn’t factor in key aspects like the environmental requirements and unsuitable soil conditions,” Riccardi said. “The only way you can say you know if the deal is in the best interest of the bank is to comprehensively analyze the guts of the project.”

DCMI Mid-Atlantic offers consulting and construction management services to a variety of clients, including lenders, developers, and residential property owners. For information on DCMI’s services or to request a proposal, contact the firm at [phone] or email Val Riccardi at [e-mail].

ABOUT DCMI: DCMI Mid-Atlantic Inc. is a Warrenton, Va.-based real estate consultancy specializing in due diligence, including property condition surveys, environmental assessments, feasibility analysis and progress monitoring inspections. DCMI supports numerous financial institutions and developers throughout the Mid-Atlantic.