When a developer or owner submits a construction draw request for their project, they are formally asking a lender for funds from the construction loan — a process that happens multiple times throughout construction. 

Ensuring that all of the required documentation is included and accurate is an important step in moving a project forward on time and within budget. The lender then verifies the completed work and the budget before disbursing funds.

Missing or error-filled paperwork stalls the delivery of these necessary funds, leading to project delays.

Developers and owners are more likely to run into these issues if their back-end information lives across multiple platforms, said Chris DeVito, general manager of Built's business unit focused on owners and general contractors. Built is a real estate and construction finance platform that helps stakeholders gain visibility into and control of their data, accelerate the draw process, analyze data to make more informed decisions, and reduce risks on their projects.

“Across our completed CRE projects, the ones that never let a single draw sit two weeks or longer finished on schedule more often,” DeVito said. “The name of the game is preventing stalls on the developer’s end rather than trying to shave hours off a routine draw.”

DeVito walked Bisnow through the hangups that slow capital release and what developers and owners can do within their back-end operations to help prevent bottlenecks.

Bisnow: What do lenders quietly care about that developers aren’t aware of yet?

DeVito: Lenders are starting to care about how expensive a borrower is to administer funds to, and most developers don't realize that's a category they're being scored in. A borrower whose draws are complete and streamlined costs a construction loan administrator a fraction of one who emails PDF files. That shows up when a bank is choosing between two similar sponsors on a constrained balance sheet. 

Document requirements have also moved to the front of the process, so a missing G703 breakdown or the wrong state's lien waiver form now results in a blocked draw rather than a phone call to the borrower to make corrections. 

Lien waivers deserve a specific callout, because they're the leading cause of draw delays on commercial construction loans industrywide.

Bisnow: What's a normal draw turnaround right now?

DeVito: Published industry baseline is five to 14 business days from submission to funding, which on a real calendar runs closer to three weeks on the slow end. On Built’s platform, the CRE median draw time is a little over two days. 

Tracking draw turnaround matters because it's the No. 1 reason completion dates slip. Fourteen days is the point at which a draw starts tracking with a missed completion date on a construction project. Turnaround also scales with size, so developers should compare against their own bond rather than an industry average: A sub-$1M draw typically clears in under two days, while a $5M to $20M draw takes about a week. 

Bisnow: What's the real cost to a developer when a draw sits for a week or two?

DeVito: Most developers run the interest math and stop there: Nine extra days on a median CRE draw costs about $319. Nobody restructures a back office to save $319.

What adds up is the total carrying cost, which runs roughly $580 a day per million of loan commitment, with the interest being the smallest piece of it. The bigger pieces are general conditions costs, extension fees and the lease-up revenue you just pushed over. On a project carrying $10M of debt, finishing 30 days late costs about $174K.

Bisnow: How much does a developer's own back-office setup actually affect how fast they get funded?

DeVito: A lot, and it's the part you control. Industrywide, 30% to 40% of first draw submissions get kicked back, and each rejection costs one to three weeks to recover. Two weeks is the threshold that matters because that's where a slow draw becomes a stalled one. 

When the lender's document checklist and real-time data are visible to the developer before they submit to the lender, and a revision comes back with the reason already attached, recovery only takes about a day. The number of revisions on subsequent draw submissions are cut in half.

Built: When a developer has money moving through more than one accounting system, what usually breaks first?

DeVito: The budget goes first, and everything downstream inherits that error. Most developers we talk to run platforms like Yardi, Sage Intacct, MRI or QuickBooks at the corporate level and something else entirely on the development side.

One large multifamily operator told us they use Yardi, but their development group isn't on Yardi. So a change order lands in one system, the two budget versions drift, and nobody catches it until a draw fails a lender check. By then, assembling a draw means deciding which system to believe before you can pull a single number, and that's where a good share of the industry's kickback rate comes from. 

Payment status is the next thing to go dark. Money leaves the account, the general ledger doesn’t recognize that, and accounts payable tells a subcontractor they've been paid, and nobody can prove it either way. The tell is simple: If someone on your team maintains a spreadsheet to reconcile two systems, that spreadsheet is your bottleneck.

Bisnow: If a developer is managing multiple properties or parcels of land under one loan, how can they keep all that data straight?

DeVito: You need the same dollars organized two ways at once: yours by building or parcel and the lender's as one budget against one loan, and both have to match to the dollar. 

This holds up until a change order lands, because then you're updating the building, phase and loan budgets as well as the sources and uses table. Miss one of these four and the draw bounces. 

The part that should worry a developer most is allocation, because charging shared site work or a shared garage to the wrong parcel overdraws one collateral position while another sits untouched. That's a conversation with your lender you don't want to have. 

The more complex the capital stack, the more important it is to streamline the draw process to keep funds flowing into the project.

This article was produced in collaboration between Built Technologies and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.