October - 2021CONSTRUCTIONTECHREVIEW.COM8IN MYOPINIONCONSTRUCTION RISK IS A DATA PROBLEMBy AmiasGerety, Partner, QED InvestorsConstruction lending is a high-risk business. It is defined by lending large sums where the collateral for the loan is yet to be built. To play with the line from the Kevin Costner classic Field of Dreams--it's not "if you build it they will come" but "if we build it, you'll be secured." All around us, the risks for this type of lending have never been more evident. Though construction is considered an "essential activity" in most states, even during COVID-induced shutdowns, construction lending actually increased in Q2 of this year. Nobody knows what the future of cities will look like after this pandemic, and nobody knows when or how the wave of real estate-related bankruptcies will ripple through the market. Moreover, construction--even construction lending at the largest banks in the world ­ is an analogue business. Risk management practices for lenders, developers and equity partners all rely on human beings to review hundreds or thousands of pages of PDF images or printed pages, compare those pages to budgets and plans and hope that they didn't miss something significant. Though there are processes to control and review these plans, these controls have very little data and almost no analysis to support them. Instead, they are underpinned by trust ­ trust in business partners and trust in employees who "stare and compare" and try to understand what's happening in a construction project.AmiasGerety
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