In order to develop a successful real estate project, you need to think about your construction plans and the team which will bring together you project on the perfect property. An experienced team will help even an inexperienced investor or owner develop a successful commercial real estate venture.

Three People You Should to Know:

1. Architect and/or Construction Manager: It’s a good idea to develop a relationship with your architect from the get-go. Letting them have a role in the construction and early stages of development can benefit you by giving you assistance with the selection of your prime contractor, oversight of bids, and certification of payments. You can also hire a construction manager to help you with these tasks. It is important to review any prospective team member’s qualifications before delegating tasks to them, but it is equally important for you to recognize your own limitations and where someone else can bring their particular experience to bear and help to make your real estate dream a reality.
2. Contractor: Bringing in a contractor at the very beginning of a development project will help you to establish a realistic and achievable timeline for your project based on the preliminary design. You should work together to set completion dates and agree upon consequences for construction delays. These consequences typically take the form of liquidated damages which are paid out by the contractor. In this way, the contractor has an incentive to complete your project on schedule. You should discuss these damages with other team members, especially your architect or construction manager, to ensure that they reflect actual expected losses which will be incurred during any delay so that they will be enforceable.
3. Lender: In Colorado, parties that work on a project before loans are secured have a prior claim on your assets in the event of a default; as most lenders require their financing to be the first-position loan, it is a good idea to get written agreement from your construction and design team to subordinate their liens from the start. It’s also a good idea to establish a lender relationship early on so that you can make sure your project will meet financing requirements before you get too far into the planning phase. It can be especially helpful to network with hard money and private lenders, such as Montegra, ahead of time as they can often underwrite short-term loans in less time than institutional lenders and are also usually more willing to include additional funds for construction or rehab projects, which can help you get your project rolling before the income starts streaming in.

Two Crucial Aspects of Construction

1. Budget. It’s important to keep your budget in mind when you’re developing your construction project. A solid development plan is a big part of securing any financing, especially an asset-secured or hard money loan. In determining the budget for your project, you’ll need to decide whether you want to employ a lump-sum fixed fee structure or a guaranteed maximum price structure (cost of work plus the contractor’s fee). Whichever structure you decide to use, you need to specify who is responsible for covering extra costs that put you over-budget and whether the contractor will share in the savings if your project finishes under-budget.
2. Insurance. Your advance plans should also include arranging for appropriate insurance coverage during the construction phase. In addition to your standard property and liability coverage, you should also look into acquiring professional liability, builder’s risk, and completed operations coverage. A risk consultant can give you advice on which insurance policies will give you the best protection for the best price.

Protecting your assets and insuring that your project will be completed on-time and under-budget is much easier when you have a team of qualified experts to support and advise you. Together, you can more successfully realize your commercial real estate vision.

This blog was written by Bob Amter, President of Montegra Capital Resources, LTD., a Colorado hard money lender.  [google_authorship] has been in the private capital lending business for 41 consecutive years.