What should lenders do when developer funds run dry earlier than expected?
Development projects of all shapes and sizes can be complex operations at the best of times. The amount of different parties involved, from those providing the funds all the way down to carpenters and labourers, means that everything is not always guaranteed to run smoothly.
However, if the money dries up while a building project is under way it can become particularly complex to assess. This is particularly true for a lender who may have already invested significant funds and could be confronted with the situation where a developer is increasingly unlikely to be able to meet their financial commitments.
So, what action should a lender take in this particular situation?
The first thing a lender should do in this situation is to make sure they assess all of the factors involved. Calling in the assistance of a specialist administration or LPA Receivership firm, such as Moorfields, is definitely a positive step to take at this stage.
This will ensure that, as a lender, you can gain clarity over whether it is financially viable (as well as sensible) to proceed with the completion of the project.
If it is deemed sensible to proceed, there is much to consider. Running costs are an immediate factor to think about, you will certainly need to be thorough in setting future costs involved with the completion and an advisory firm such as Moorfields can provide strong guidance in this area.
Timescales are also very important to consider, and they obviously run parallel with the future costs you are prepared to commit to. For example, if you decide that you believe 18 months is a feasible timescale to finish the project then you will need to plan for 18 months worth of extra costs.
Receivership specialists
At Moorfields we can specialise in numerous areas involving property, such as lpa receivership. Our team can work in conjunction with established construction firms to decide whether it makes financial sense for an uncompleted development project to be finished.