January 25, 2024
9am-4pm


Member Fee: $265
Non-Member Fee: $465


Construction loans for both residential and commercial real estate (CRE) remain a major part of commercial bank lending, despite some decreases in volumes due to interest rate increases and economic conditions.  On the residential side, remodeling continues to be strong in many markets. CRE construction projects have seen continuation of growth for certain property types such as multi-family and industrial/warehouse. This program provides an overview of the many issues involved in both residential and commercial construction administration, as well as key differences between them.  The focus is on the issues behind the various procedures in construction.

Many community banks attempt to utilize versions of their residential formats and policies to administer commercial construction loans; however, this generally does not adequately control risk in commercial situations due to several important differences between residential and commercial projects.

Further, many banks seek industry-wide standards, parameters or dollar thresholds for things such as (1) usage of American Institute of Architects (AIA) forms for pay requests, (2) requiring a payment and performance bond from the general contractor, and (3) requiring third-party inspections.  While such standards do not exist, this program explores ways to tailor these issues to your construction portfolio, bank size, market dynamics and other issues.  This topic, and others, can be enhanced by discussion among the participants concerning current practices.

Topics include:

• What is construction risk and how does it differ from general credit risk
• Identifying the degree of risk and appropriate levels of monitoring and controls
• Types of construction situations: full construction vs. repair/remodel/repurpose and their effect on the administration process
• Differences between residential and commercial construction loans
• Issues with construction contracts and budgets
• Assessing contractor credentials and financial strength, plus a format to use
• Residential:
  • Additional due diligence, beyond a conventional mortgage application and underwriting, such as a detailed cost estimate (Description of Materials form)
  • How is the construction loan going to end (get repaid)?
• Commercial:
  • The role interest reserves
  • Increased use of pre-built or pre-fabricated components
• Seven items that determine how you handle a specific construction loan

1. The degree of overall risk
2. The type of project (full construction vs. repair/remodel/repurpose)
3. The loan approval any policy waivers or added conditions or contingencies
4. The term sheet (or commitment letter) to the customer
5. Your bank’s policies and procedures
6. The construction loan agreement
7. Results of inspections and other events during construction

• Overview of common documentation, including surveys and title insurance, plus surety bonds in commercial situations
• Common funding controls, such as inspections, lien waivers (including an emerging legal issue with general versus conditional waivers) and funds disbursement practices
• Dealing with cost overruns, delays and budget changes
• Completion of the project and (if applicable in commercial situations) release of the retainage, plus project stabilization
• Special issues with owner-occupied loans

Commercial lenders, credit analysts and support staff that deal directly with commercial construction loans; consumer lenders, mortgage bankers, private bankers and support staff involved in residential construction lending; small business lenders, loan review specialists, special assets officers, lending managers and credit officers indirectly involved in the construction lending process.

Richard Hamm has been training bankers for 30+ years, designing and delivering programs specializing in commercial lending and credit, including portfolio and risk management, commercial real estate (CRE) and appraisals, plus selling and negotiating skills, and director training. He is based in Huntsville, AL and has owned/operated Advantage Consulting & Training for 15+ years, after a 22-year banking career including senior positions in lending and credit, plus president of a community bank through formation and acquisition of an existing bank. During his banking career he was active within RMA’s chapter structure, plus serving on several committees at the national level.  He has written over 20 articles for The RMA Journal and still serves on The Journal’s Editorial Advisory Board.  He has created several courses for RMA, including the first versions of Global Cash Flow and Construction Loan Administration.  He has also been involved in updating, editing and teaching most of RMA’s commercial real estate courses. In 2010 he served as subject matter expert for RMA’s e-learning/online The Commercial Real Estate Lending Decision Process curriculum. In 2012 Richard edited, updated and revised ABA’s long-standing textbooks Commercial Lending and Analyzing Financial Statements, as well as provided content for an electronic curriculum based on both books.  The content was again updated in winter 2018-2019 and winter 2019-2020 to add content on fraud and anti-money laundering, asset-based lending and CRE lending. Starting in 2016, he has been facilitating periodic “senior lender forums” for state banking and community banking associations, currently with eight groups across three states, as well as quarterly and annual senior lender events for the Barret School of Banking. He has BS and MBA degrees from the University of Alabama.

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Due to commitments we must make, if you must cancel your registration for this program, please do so at least 3 business days prior to the meeting date to avoid a $125 cancellation fee. Any registrant who does not cancel will be billed the full registration fee and sent the materials. Substitutions are welcome at no additional charge.