Is Your Project Distressed?

A critical facet of any project monitor is an ability to be impartial, so that stakeholders in the project have the confidence that all advice and reports are accurate and tell the whole story.

As a lender you should see a project monitor not as another consultants fee. A good monitor acts as a buffer for the lender and can be the difference between success and failure. Their advice will keep the project on track. If anything were to adversely affect the project then the monitor would advise all parties of a suitable strategy to deal with the issue.

Many developers have little or no experience of building projects and all the processes and tricks of the trade needed to deliver profitable projects. Many watch the multitude of TV programs such as Grand Designs and think, "I could do that". More often than not they get into hot water fast as they cut corners and simply don't understand the various professionals, trades and stages needed to carry out the job.

So how can you tell if your project is becoming distressed?

Here are some examples of where a project is becoming or is already distressed;

• Construction costs are unrealistic

• Consultants fees haven't been allowed for

• Collateral warranties have not been used (Privity of Contract)

• Suitable contracts between developer and supply chain are not in place

• Adequate supervision of the project is not available

• Timescales quoted are unrealistic or progress is slow

• Equity is not at the correct level

• Borrower has no funds left

• Inferior quality of build, impacting the value of the asset

• Payment issues in supply chain, funding not being disbursed correctly and on time

• The market slows down impacting sales values of asset

It is important that the lender as well as other stakeholders are kept informed of what is really happening on site. This requires site visits, recording of progress and spend in relation to projections. are there any issues to be flagged, remedial actions necessary?

At ConstructPRO we have a saying; "There is only one thing worse than bad news and thats late bad news".

As we head out of recession lenders need to take stock of where they plan to be and how they monitor their developments. If they don't they are heading for trouble and what happened in the last recession and this one will be repeated again and again, e.g. borrowers going out of business, banks unable to step in, loan-to-value ratios exceeded and so on.

A project monitor is a highly valued member of any construction team and is essentially the eyes and ears of the lender on site.

Are you getting a good service from your current monitor? Have you had problems in the past with schemes that became distressed despite having a monitor in place?