Access to capital is always a vital component of every commercial real estate project. The capital stack is expected to become an increasingly complex and competitive marketplace in the coming year, as the capital markets adjust to new regulations, a new administration in DC, and global economic conditions.

All of those uncertainties add up to a greater need for accurate information. That’s a reason AEI Consultants rolled out a robust suite of construction consulting services that assist lenders and owners gain more confidence when making decisions about new development or redevelopment projects.

The Bay Area-based, nationwide environmental assessment and engineering firm’s Peter Fleming Millar shared why construction consulting services are vital now, what role they can play for construction lenders, as well as the competitive advantages gained by those who tap into AEI’s broad range of services.

Q: What are the major trends you are tracking in 2017, and how will they affect the commercial real estate construction sector?

A: It has become increasingly difficult for conventional lenders to offer construction lending, as a result of risk retention rules and the regulatory environment. That’s why AEI’s focus has been on the non-conventional lending sector. We recognized the market need to work with non-conventional sources offering bridge, direct and ground-up financing options.

In some markets, local legislative issues are restricting the development of housing projects, despite increased demand. In New York, the expiration of the 421-a program, which provided substantial tax abatements in exchange for the development of affordable housing, has prevented new housing projects from moving forward. Together with Governor Andrew Cuomo, the Real Estate Board of New York (REBNY) and the Building and Construction Trades Council of Greater New York reached an agreement to revive 421-a. The proposed agreement, which must be approved by both the New York State Senate and Assembly, establish minimum salaries for the construction workers on projects seeking the now 35-year tax abatement. And in Los Angeles, the JJJ initiative places salary requirements in order for projects to qualify.

It remains to be seen if the underwriting of these projects are hampered by the new salary requirements.

Q: So how can developers and lenders navigate issues faced, and what is AEI’s approach to construction consulting services?

A: In order to better mitigate risk for lenders on today’s projects, AEI advocates a combination of sound national reach with in-depth local market knowledge. Delivering the right information to limit risk requires a deep understanding of the local market and the players involved. AEI believes that can only be accomplished by having teams in the field who are familiar with the market. To provide that knowledge and expertise, AEI staffs 23 offices across the continental United States.

By having a firm grasp on market conditions, costs, construction trade issues, legislative environments or path of growth trends, we are able to deliver real-world cost information from similar projects. Given the very tight windows in which developers now must operate, it is imperative to possess time and cost certainty. It helps keep borrowers from over inflating budgets, or setting too low of a contingency to account for unknowns on renovation projects.

Q: What should lenders expect to gain from construction consulting services?

A: Risk mitigation for non-conventional lenders is at the core of our services. The last thing that a lender wants to do is end up in the role of the owner/operator of an asset or with a partially-completed project, since that’s not its core business. In addition, partially completed projects are often worth less than the original land value of the project. Construction consulting services that include extensive construction risk assessments and project status evaluations can help avoid that painful pill.