In 2023, Pond Robinson & Associates monitored $17B in new development projects, primarily on behalf of equity-level investors and for nearly all asset types. Equity Construction Monitoring and Construction Loan Monitoring both focus on overseeing construction projects, but they serve different purposes and cater to distinct stakeholders. In higher risk investments, it is common for lenders and debt funds to increase their coverage of their investments, which can involve utilizing an equity level scope of work for their construction monitoring program. Here’s a breakdown of the differences between the two:

Purpose

Equity Construction Monitoring: This is typically conducted on behalf of Owners, developers, and LP equity stakeholders who have a great financial interest in the construction project. The goal is to ensure that the project is progressing as expected and that the funds are being used appropriately. It’s focused on verifying that the project meets budget, schedule, and has an expanded scope with a heavy emphasis on quality assurance.

Construction Loan Monitoring: This monitoring program is usually conducted on behalf of lenders, such as banks or financial institutions providing the loan. The purpose is to safeguard the lender’s interest by ensuring that the loan funds are being used correctly, the project is progressing according to the agreed-upon milestones, and that the construction stays on track to avoid financial losses.

Staffing

Equity Construction Monitoring: This scope requires a seasoned professional who is not only an expert in construction project management but also has the technical skillset to perform detailed reviews schedules, field reports, and design documents and evaluate field conditions and identify construction deficiencies. They must also possess strong accounting skills in order to more thoroughly review and report on the financial progress and adjustments for each project.

Construction Loan Monitoring: This scope requires a professional that possesses a general understanding of construction projects and financial controls, primarily as it relates to the requirements of the construction loan agreements.

Scope of Monitoring

Equity Construction Monitoring: This involves a much broader and detailed scope that includes both financial monitoring and assessing the overall execution of the project. Equity monitoring involves tracking multiple performance indicators, project delivery timelines, contractor performance, and ensuring an institutional quality of product. Additional time is required on site to review the detailed installations of critical systems for verification of compliance with the design drawings and specifications and comparison to industry standards.

Construction Loan Monitoring: Primarily focused on the financial management of the project. It includes review of milestone construction schedules, inspection reports, and progress payments to ensure that the funds are being used as intended and that the project is on track for completion. Site visits typically take less time than an equity level inspection.

Frequency and Types of Reporting

Equity Construction Monitoring: At a minimum, this program will include regular monthly reporting on project status, quality, and financial matters such as potential change orders and draw requests. This is often augmented by interim site visits, milestone site visits, weekly meeting attendance, and other additional services as determined by certain project milestones or by the overall health of the project.

Construction Loan Monitoring: This is often monthly when loan disbursements begin and is more focused on general financial and construction progress reporting.

Involvement in Project Changes

Equity Construction Monitoring: Equity stakeholders and consultants may be more involved in strategic decision-making, such as reviewing design changes or budget increases, since their decisions and recommendations can affect the project’s success and ROI. The representative will provide funding recommendations for the equity partners. Technical assistance is also provided for engineering and quality opinions related to changes and issues.

Construction Loan Monitoring: Lenders may have less involvement in day-to-day project decisions but can impose certain conditions or hold up payments if they suspect that the project is not progressing according to the terms of the loan agreement.

Summary:

Equity Construction Monitoring focuses on the investor’s interest, ensuring the project’s overall financial health, quality, longevity, and operational success.

Construction Loan Monitoring focuses on the lender’s interest, ensuring proper use of loan funds and that the project progresses according to financial agreements.

Learn more about our development and construction services here: Learn More