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Banks Fail to Manage Construction Risks, Says New Report

LONDON-Many of the banks lending to developers are not appropriately managing construction risk, according to new research by FPDSavills

By Anita Howarth | Updated on January 13, 2003

LONDON-Banks are failing to adequately manage construction risk when lending to developers, according to a new survey by FPDSavills.

Almost half thef respondents said that they do not, as a standard, commission an environmental assessment. These assessments can reveal potentially significant remediation costs and impact on subsequently land values. Furthermore, only half the lenders interviewed always require a check against occupier requirements and institutional standards of development. To make matters worse, a significant proportion of lenders allow the borrowers to set the scope of the technical due diligence.

Stuart Johnson, director at FPDSavills, said: “Although on the whole banks are lending responsibly, we have uncovered areas where risk is not being appropriately assessed. Lenders must satisfy themselves that all aspects of technical due diligence are considered in order to minimise the risk of cost overruns, delays or potential problems with the future sale or letting of the property.”

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