Tim Ryan

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White Paper: Future-Proof Your Construction Lending Program

Posted by Tim Ryan on 8/20/18 4:24 PM

The United States is experiencing one of the most prolonged economic growth cycles on record. This cycle has led to an expansion of the commercial construction industry with growth expected through 2020. However, in addition to the “what goes up must come down” history of recessions, signs of a potential downturn are peeking their heads up from behind the cinder block. We’re beginning to see subtle signs of a slowdown, like the upward inching of interest rates and inflation, and not so subtle signs, like skyrocketing costs for materials and trade wars.

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Topics: Construction Loan Management, Trends in Construction Loan Software

What is a draw request?

Posted by Tim Ryan on 7/24/18 5:39 PM

Managing the flow of funds within a construction loan is much different than for traditional loans. Rather than receiving a lump sum check, construction loans pay out the loan amount over the course of the project. The installments are called draws, as the lender draws funds from the account. A draw request is necessary to ensure disbursement of the funds.

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Topics: Construction Loan Management

What to Review In Third-Party Inspection Reports

Posted by Tim Ryan on 7/16/18 4:23 PM

An essential part of managing construction loan risk is to align invoiced work with the project timeline and budget. The work should also be performed to meet building code and consumer expectations. Many construction lenders lack the time and experience to evaluate the quality of work done by the builder. That’s why it's crucial to know what to review in third-party construction inspections, as they are a critical part of a successful construction loan management program.

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Topics: Construction Loan Management

Three Example Issues Uncovered by a Third-Party Draw Inspection Report

Posted by Tim Ryan on 7/12/18 2:05 PM

A third-party construction draw inspection happens when the inspector, often hired by the lender, reviews the progress of a construction project. The primary objective of these inspections is to ensure that the project aligns with the scope, budget, and timeline outlined in the original construction plan. When completed, the inspector submits a construction site inspection report to the lender. The report helps the lender meet compliance regulations and helps them decide to approve the draw request for payment or to hold off for the resolution of any issues. 

The following three examples came up during third-party inspections. They help to illustrate the actions required by construction loan administrators to evaluate and decide how to act on the draw request. 

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Topics: Construction Loan Management

New HVCRE Capital Requirements and the Commercial Real Estate Sector

Posted by Tim Ryan on 6/28/18 11:01 AM

Following the financial and banking crisis from 2008 to 2013, almost 500 banks failed. The cost to the FDIC fund came in around $73 billion including $12 billion from the failure of IndyMac, the most expensive failure in FDIC history. One of the outcomes of the crisis was an overhaul of banking regulations, including higher capital requirements for High Volatility Commercial Real Estate (HVCRE). The regulators deemed certain commercial construction loans to be riskier than others and the new requirements were designed protect financial institutions in the event of a loss from failed construction loans. The 2015 regulations required that HVCRE loans carry a 150% risk weight for loans that finance the acquisition, development or construction of real property. That means covered lending institutions must reserve $1.50 per $1.00 of capital compared to non-HVCRE loans. This, of course, adds costs and limits to credit availability for commercial real estate borrowers.

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Topics: Construction loans

What are the Types of Construction Loans?

Posted by Tim Ryan on 6/27/18 4:13 PM

The Urban Land Institute's (ULI's) three-year economic forecast indicates that the U.S. commercial real estate market can expect continued growth through 2019. This outlook means construction lenders and construction loan administrators will be busy into the foreseeable future.

There are a variety of construction loan types on the market today. This post is focused on a few of the most common commercial construction loans. These construction loans are used to build projects like The Domain in Austin, Texas. It’s a high-density office, retail, and residential center currently owned by the Simon Property Group. Or, to build a 25-acre family water park in Oahu, Hawaii. Also, the tallest residential high rise tower in the Western Hemisphere was built using construction financing. It is located at 432 W. Park Avenue in New York City. The penthouse unit has 8000+ square feet, 6 bedrooms, and 6 bathrooms with a listing price of $82,000,000.

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Topics: Construction Loan Management

Eight Construction Loan Monitoring Reports That Crush Risk

Posted by Tim Ryan on 6/13/18 11:29 AM

There’s a four-letter word we hate to hear in the construction lending space. The word is RISK and, like an evil force that encourages unintentional oversight, it threatens progress and compliance throughout the construction loan administration process .

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Topics: Construction Loan Management Software, Construction Loan Management

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Helpful Resources

Contract Simply Construction Payments Report 2018

Contract Simply Kickstart Guide to Construction Loan Software

White Paper - Future-Proof Your Construction Lending Program from Contract Simply

Contract Simply Infographic on Construction Loan Administration

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