In the current economic cycle of relative uncertainty Banks and other funders are being even more selective on the construction projects they fund. To ensure that lenders' interests are fully protected it is now even more important that they select an appropriate Monitoring Surveyor.
How can you tell a good monitoring surveyor from a bad one?
In simple terms you would assess the following
- Knowledge of the construction market, funding mechanisms and land ownership
- Understanding of how funders and banks operate and the various financial terms
- An understanding of how a bank decides to fund an asset, and how banks perceive risk
In practice you need a balanced combination of experience in both construction and financial environments. A monitoring surveyor who for instance has worked in the property arm of a bank as well as on contruction sites would have a far wider knowledge base and level of understanding in performing the role for a funder and ensuring that lenders’ interests are managed and understood, than one who is only experienced in one element. At Faithful+Gould, we are fortunate in that our monitoring team is headed up by a former banker. I am both an Associate of the Chartered Instuture of Bankers as well as being a Chartered Surveyor. During my banking days I prepared Credit Papers for advances and perfected securities. This banking experience gives us insight in to what lenders are looking for from this particular service.
At Faithful+Gould, we are fortunate in that our monitoring team is headed up by a former banker. I am both an Associate of the Chartered Instuture of Bankers as well as being a Chartered Surveyor. During my banking days I prepared Credit Papers for advances and perfected securities. This banking experience gives us insight in to what lenders are looking for from this particular service.
Why do you need Fund Monitoring?
Fund monitoring requires a competent surveyor to undertake close control of a lender’s debt finance which will be drawn to fund the construction of an asset. It is the responsibility of that fund monitoring team to consider and manage the risks involved in that loan and advise how best these can be mitigated with real solutions. This will include regular site visits to ensure the project is running to programme and budget and to pick up any issues when they arise and resolve efficiently, informing the lender throughout.
What to look out for in Monitoring Surveyors:
- An awareness of the terms of Facility Letters, in particular liaising with other consultants appointed by the lender to ensure that any Conditions Precedent have been discharged.
- A team in which all members are aware of the difference between cashflow funding and lending on a ‘fully funded’ basis.
- An understanding of funding models to enable detailed checks to be undertaken and ensure the debt is not being recycled
- Capability to check that the fully funded model contains allowances for the Bank’s arrangement, exit, non utilisation fees (to the extent they are applicable) and input and output VAT and debit interest.
- Indepth knowledge of the procurement routes
- Good technical skills to review who has liability for design of the works
- Ability to think like a Banker and to apply knowledge of financial environments in addition to the knowledge of a surveyor.
Faithful+Gould Fund Monitoring Team
We have in house specialists who can provide instant advice to the Fund Monitoring team on items such as planning consents, building control, land remediation and flood prevention.
We can advise throughout all stages of the project:
At Initial Report stage various issues can arise for which detailed knowledge is required and may require specialist input. Multi-disciplinary consultancies such as ourselves have in house specialists who can provide accurate factual information to help resolve these issues. We have previously used this experience on projects which would not have been funded by banks, to turn them round and make them fundable.
Once work starts on site we always seeking to indentify if any of the works and processes do not reflect a lender's understanding of the transaction, or prevent the funder from being repaid. Should anything be identified, or a risk arise, we immediately advise the funder of the issue, together with a number of mitigation options. These enable the funder to liaise internally with Credit in a timely way, so that a lender's revised requirements can be communicated by the funder to the Borrower.
Funders lend on the basis of portfolio management, supported by historical data. This data informs the funder what percentage of an asset can be funded by the bank. The Faithful+Gould team fully understands and ensures that if there are cost increases, the funder needs to be advisd immediately as the borrower may need to inject more equity to ensure that the ‘costs to complete’ remain within the bank facility.
In summary, our experience enables the team to see funding transactions through the eyes of both a banker and a Chartered Surveyor - funders want to lend a predetermnined percentage to fund an asset, be repaid and make a profit from the transaction. In particular they want to be made aware immediately should any factor delay or prevent the money being repaid at the time orginally envisaged. Our view is that this perception is important in selecting a Monitoring Surveyor.
Faithful+Gould has provided Fund Monitoring services for almost 20 years to a variety of lenders, including banks, joint ventures, freeholders and government agencies on projects in the UK, Europe, Africa and the Middle East on assets with a range of construction costs between £4m and £500m.