The financial ecosystem surrounding any construction project is infinitely complex and benefits from real-time collaboration between stakeholders in a tightly structured management system to control the entire process. Partner Insights spoke with Jim Fraser, Director of Commercial Real Estate Strategies at Built Technologies, about how Built created a construction loan management solution to serve lenders, developers and general contractors, and how how today’s economic realities will affect CRE construction in the future.
Business Observer: Give us a brief overview of Built Technologies.
Jim Fraser: Built was launched to solve the pain that developers and builders experience when trying to withdraw funds from their construction lenders. Lenders want to control funds to ensure that advances are aligned between the construction loan and the overall progress of the project. In 2015, the founders of Built were struggling to secure timely construction advances from their lenders. It was a hunt for paper – emails, phone calls, text messages, PDFs – just to get the required draw information for lenders, and each lender was asking for different formats for essentially the same information. Our founders realized there had to be a better way. Since lenders were all asking for the same documentation, we felt we should be able to generate a digital solution for standard draw documentation and due diligence activities.
This is the idea that launched Built Technologies seven years ago. Since then, the company has grown to over 300 employees, mostly based here in Nashville. In fiscal year 2021, we reached a major milestone – $200 billion in construction projects managed on the Built platform, which serves banks, non-banks, debt funds and private lenders, credit unions, mortgage companies, life insurance companies – basically, all lenders in the debt space that finance building construction. Today, Built’s platform serves everything from owner-occupied consumer residential properties to kitchen renovation under GSE [government-sponsored enterprise] programs at one end of the spectrum, down to the largest CRE build managed on Built, which is just over $1 billion with a complex capital stack and multiple funding sources.
Who are Built Technologies’ main customers?
Built’s core clients and systems serve the lender – they hire us. But, given the multi-party nature and collaborative requirements in property construction, Built also supports the owner/developer, general contractor, and due diligence providers such as inspectors and title companies. Having served the lending industry, we also realized that we could provide tangible benefits to those receiving the installments and also develop a range of products specifically for other participants in the construction industry.
How many lenders does Built Technologies work with?
In the United States and Canada, 170 active lenders and more than 200,000 contractors use Built’s systems. For reference – and based on call reports filed by regulated financial institutions – we can assess our share of construction lending activity. We have 38 of the top 100 U.S.-regulated construction lenders who handle construction on Built.
What other unique services does Built Technologies offer construction professionals?
This goes back to the pain points I mentioned earlier. As an owner or promoter communicating with my lender, I am required to produce certain documents and reports. These additional requirements, such as progress inspections or privilege waivers, are features that Built technology has automated. For example, using Built’s mobile technology, an inspector reporting on the project can use our technology to visit the site, take photos and report their findings in real time to the loan administration team. By digitizing this flow of information between stakeholders, our clients benefit from a material gain in the speed with which funding is drawn and an improvement in interest income.
How does Built help lenders increase their interest income?
Lenders using offline manual processes can take eight to 10 days to receive and process a construction drawdown request. Although the outstanding funds are not unpaid, the lender does not collect interest on this advance. If the lender can shorten that period from 10 days to three or even two days, he has recovered seven or eight days of additional interest income. For lenders with larger CRE build balances, those extra days of interest add up quickly. For small lenders, simply improving internal controls while providing an online construction loan solution to their borrowers brings value.
What is the scope of Built’s business?
The US Census Bureau estimates construction in the United States, excluding public improvement investments, at 700 billion dollars. Construction actually affects a large portion of total construction activity in the United States, both residential and commercial – we ended 2021 at just over $200 billion. And, we also added Canada in 2020, with many of Canada’s largest lenders now active on Built.
Are there any new products or services Built are looking forward to launching this year?
We are expanding the way we think about existing offerings to better meet the needs of our customers. Last year, Built released a feature that monitors properties for any involuntary liens attached to real estate securing the construction loan. We introduced this service to current Built clients and found that lenders were often unaware of any liens that had been registered between title searches or endorsements. Prompt resolution of larger and potentially material non-monetary defaults is important, not only to the lender, but for the significant curative value they hold for the lender’s customer to resolve disputes before they escalate into litigation. . Now, larger CRE portfolios with term debt see the value in these data connections to help quickly reveal hidden loan defects.
As material costs fall while inflation rises, how will the construction industry be affected?
Not all material costs keep pace with supply chain issues. We are seeing a range of disruptions affecting construction progress across different asset types and local markets. Most construction loans have interest reserves capitalized in the loan budget. As interest rates rise and note rates adjust, interest reserve balances will be strained both by rising material costs and longer construction times. . The combination of these will increase the consumption of interest on reserve balances. As a result, the builder/developer may need to top up the reserve balance mid-term.
Now that we are approaching hopefully the later stages or perhaps even the end of the pandemic, what will this mean for commercial real estate construction regulations?
At least for regulated financial institutions, the CARES Act allowed banks to expand and modify construction loans that were impacted by pandemic-related health and safety checks, and to be very lenient in the how banks assessed and managed construction loans during the pandemic. I don’t see a complete repeal of the CARES Act, but I do see some changes as loan officers return to more normal market conditions, which means a closer look at how lenders assess and manage their building portfolios.