Most construction advisory firms choose a lane. Construction loan monitoring firms serve lenders. Construction management firms and owner’s representatives serve developers and property owners. The business models, the client relationships, the contractual obligations, and the professional culture of these two types of firms are organized around different principals with different interests.
The assumption behind this specialization is that serving lenders and serving developers are in tension, that an advisory firm cannot be fully independent when working for the lender if it also has relationships with the developers whose projects it is monitoring. This assumption is understandable, and it reflects real risk that must be managed carefully. But it also misses something about what makes construction advisory valuable to both sides of the transaction.
The Knowledge That Flows Both Ways
The most valuable thing about working across both developer and lender engagements is the knowledge transfer that happens in both directions, not between clients, where confidentiality governs what can be shared, but within the professional practice of the advisory firm’s principals.
A construction advisor who has managed multifamily projects, who has been the person deciding when to approve a GC’s draw request, managing a change order dispute, or pushing back on a schedule that the GC says is achievable but that experience says isn’t, brings that judgment to the monitoring work they do for lenders. When they review a contractor’s completion percentage claim in a lender’s draw package, they are not reading it as an abstraction. They are reading it as someone who has made those claims themselves and who knows where the temptation to stretch the numbers arises and what the stretched claims look like in a draw package.
The reverse knowledge transfer is equally valuable. A construction advisor who has reviewed hundreds of draw packages, who has seen the patterns of overfunding, the early warning signs of contractor cash flow problems, and the cost-to-complete estimates that don’t hold up, brings that pattern recognition to the construction management work they do for developers. When they are advising a developer on whether to accept a GC’s change order claim, they are evaluating it with the same scrutiny that a lender’s monitoring program would apply.
This cross-pollination of knowledge, developer knowledge informing monitoring practice, monitoring knowledge informing development advisory, is not available to firms that work exclusively on one side.
What Lenders Get From an Advisor With Developer Experience
When a lender engages a monitoring firm whose principals have direct construction management experience, the monitoring reports they receive reflect a different quality of judgment than reports produced by inspectors whose entire careers have been on the monitoring side.
The lender gets: cost-to-complete estimates that are grounded in current knowledge of what trade work actually costs in the local market, because the advisor has been procuring and managing those trades for developer clients; completion percentage assessments that reflect understanding of what actual construction progress looks like at each phase, because the advisor has managed projects through those phases; and early identification of GC performance problems, because the advisor recognizes the patterns of a contractor in trouble from having managed around those patterns in their development advisory work.
The independence is maintained, the advisor’s obligation in the monitoring engagement is to the lender, and that obligation is not compromised by prior development advisory relationships with unrelated parties. What the developer experience adds is knowledge, not conflict.
What Developers Get From an Advisor With Monitoring Experience
When a developer engages a construction manager or owner’s representative whose principals have worked extensively in construction loan monitoring, the developer gets an advisor who understands how lenders think and what lenders need from the construction program.
A developer whose advisory team understands the monitoring process can structure their construction program to make the monitoring process as efficient as possible, submitting draw packages that are complete and accurate, maintaining the documentation that monitoring firms need to verify progress, and proactively communicating project status to lenders in the format that lenders find useful. This reduces friction in the draw cycle, which reduces the time from draw submission to funding, which reduces the carrying cost of the construction loan.
More substantively, a developer advisor with monitoring experience can help developers understand how their construction program will look to the lender throughout the construction period, not just at origination, but at each draw when the monitoring report shapes the lender’s assessment of the project’s risk. A construction program that is managed with the lender’s perspective in mind produces fewer surprises in the monitoring process and maintains the lender relationship through the construction period more effectively than one that treats the lender as a necessary inconvenience.
Why the Dual-Perspective Model Works
The dual-perspective model works because the interests of developers and lenders, while not identical, are more aligned than the separate-lane model assumes. Both parties want the project to complete within budget and on schedule. Both parties want the construction program managed professionally. Both parties want the monitoring process to reflect reality rather than optimistic claims.
An advisory firm that serves both audiences, that has built professional practice on both sides of the transaction, is an advisor who understands that reality from both perspectives. The knowledge base is richer, the judgment is more grounded, and the service to each client is better than what a single-lane firm can provide.
Innergy Integral’s three service lines, development advisory, construction management, and construction loan monitoring, exist because this is how the firm’s principals have always worked: close enough to every dimension of the construction and lending transaction to understand what each party needs and to provide advice that reflects the full picture.
Related: Construction Loan Monitoring · Construction Management Services · Lender Advisory Services · Construction Loan Monitoring Guide
Markets: Construction Loan Monitoring Seattle WA · Construction Management Dallas TX · Owner’s Representative El Paso TX