Our Risk Management approach is simple ... We choose Lenders carefully
When local property markets are hot and everyone wants to get into the action, it's vitally important to choose a construction lender that has the systems, the suitably trained personnel and a 'pro-active' attitude, specifically designed to work for you, rather than against you, and this is particularly important when something bad happens to your project.
For example, what happens if your builder goes into voluntary bankruptcy during construction?
Very recently, we have seen a spate of failures of several well-known, south east Queensland based builders, some of which were working on several hundreds of millions of dollars worth of contracts at the time they crashed. When such failures occur, the position and the approach of any construction lender will become very important for our clients so as to ensure the limiting of financial damage.
From our experience, Developers too often get bogged down in the details of any construction loan and preliminary offer documents, turning their attention to what is the 'default interest rate'? .... or why is the establishment fee cost so high? .... rather than looking at the track record and the general day-to-day approach of that lender.
This is an area where Viking differs from most other brokers, bankers and/or fund managers because we remain committed to the completion of our client's projects and we will do whatever is necessary to ensure our clients don't get hung out to dry by their lender. In other words, what we certainly don't want to see, is our lender defaulting the borrower and selling their property “as is”, half completed, only to result in a huge financial loss for all involved and believe me, this action is not uncommon in the commercial finance industry.
Recently one of our valued clients experienced a builder going into liquidation mid-construction, however our well-chosen lender took immediate steps to get their project back on track including initiating the following internal actions:
a full-time account manager was assigned to work closely with the developer;
The M/Director of the Fund provided 'private counsel' to the Developers in such matters as insolvency management, including how to complete appointment of a replacement builder
The lender provided an undertaking to the Developer to make direct payments to sub-contracting trades-persons and suppliers in order to re-establish confidence in the project
Extending the loan facility to allowing extra time for the outstanding construction works to be completed; and
Providing a remodeled “working cashflow” to ensure building works recommenced as soon as possible.
So again, if we could just re-emphasise how important it is in choosing a construction lender from a risk management point-of-view. At Viking, our senior staff have been setting construction loans for fourteen consecutive years, and suffice to say, we know the wheat from the chaff
In summary, don't forget the risk management protocols when you are looking for your next construction loan because you just never know what might happen in this day and age.
Happy hunting ... and don't forget this pearl of wisdom:
"The cheapest interest rate is not necessarily the best value" !!!