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This paper looks at one approach that lenders can use to assess the risk of property development loans. It focuses on a pre‐approval analysis of several key elements of the construction process and presents a means of developing an overall risk rating for a given project to assist the underwriter with the approval and pricing process. In addition, the paper reviews the post‐approval requirements for the appointment of qualified consulting professionals and the information required from them, enabling the lender to react immediately to any major construction or cost variance. It also includes an attempt to clarify ‘cost to complete’, a confusing concept used to ensure that sufficient funds remain at all times to complete the approved project.
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Ken Gordon (2003) studied this question.
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