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Construction lending is big business in the US, and access to construction loans for commercial real estate has become more competitive in recent years. There is often significant time pressure to close a loan and move a project along, in order to take advantage of a market opportunity or hit the construction season. Construction lenders may skimp on due diligence review of project design and construction contracts under these pressures, assuming that they are standardized contracts or that loan documents or consents to assignment cover all the bases.
But myriad issues can lurk in design and construction contracts that can derail a project, leading to significant and costly challenges that make a project an inefficient investment for everyone involved. Cost and schedule overruns, a steady flow of change orders and intractable disputes are common on construction projects, and are exacerbated greatly by inadequate project contracts. Taking the time to diligence contracts in advance of closing can save time and money in the long run, for lenders and borrowers alike.
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