Tuesday, January 29, 2013

Prum on Construction Lending for Green Buildings

Darren-PrumDarren Prum (Florida State) has posted Greenbacks for Building Green: Does a Lender for Sustainable Construction Projects Need to Make Adjustments to Its Current Practices? on SSRN.  Here's the abstract:

In the development of real property, the availability of money to secure construction resources becomes an important factor for success. The construction loan plays a central role in providing funds to erect a building on real property, but a lender faces numerous exposures that might result in a loss. In evaluating a project to determine its viability and to uncover any exposure it might present, a lender will conduct an extensive underwriting review process and will use mitigation techniques through the construction loan agreement and disbursement requirements to reduce the perceived risks to an acceptable business level, for those developments deemed worthy. With the recent transition into more sustainable construction practices, many lenders will fail to recognize that the construction of a green building differs from a traditional one. The meaningful distinctions between these different methods merit an evaluation of their own in order to properly assess and manage the risk associated with a construction loan for a green building. Accordingly, this article seeks to address the unique issues associated with a construction loan for a green building and provide solutions that can mitigate the exposures presented to acceptable levels.

Steve Clowney


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