How to Navigate the Ever-Changing Construction Loan Market

Construction lenders have been “very prudent in their due diligence, appropriately cautious in their underwriting and humble in their willingness to admit what they don’t know,” Wise writes.

ATLANTA—The market for construction loans fluctuates more than almost any other commercial real estate lending market. However, the underlying construction development industry has traditionally been far slower to react to both internal and external market forces. This difference creates increased risk and necessitates additional oversight and problem solving from prudent and agile lenders or their servicers. Here’s what lenders need to know to successfully navigate the market and protect their investments:

Capital Market Changes. Construction loans can be a great source of quick growth and a return booster for lenders in times of general economic expansion, but they are typically the first to cease production in times of distress or uncertainty. This, combined with the highly technical and specialized nature of the investments, makes lenders reluctant to staff up and maintain full-time internal departments over the long term.