A senior member of JN Group’s management team is calling on real estate developers to create a checklist of all the possible issues that may impact their construction projects before seeking funding, warning that banks are conducting their own backgound checks on the individuals invovled in the developments.

JN Group Assistant General Manager and Chief Development Financing Officer Earl Samuels revealed during the recently held International Real Estate Conference (IREC) and Homeowners’ Expo, at Montego Bay Convention Centre, that institutional lenders such as JN Bank usually undertake thorough due diligence exercises to vet real estate developers and their projects, ahead of approving loans. This process will help the financial institutions assess a number or risks such as legal, financial, environmental, or physical factors, in order to reduce their impact on the project.

Underscoring the importance of the investigative process Samuels noted that, depending on the level of risk involved in a project, a developer can access up to 80 per cent of costs for residential construction and up to 70 per cent for commercial developments.

“We want to make sure that the people who we are dealing with have the capacity and also the experience to successfully implement the project,” he explained.

During the due diligence process banks and other financial institutions usually peruse a raft of documents and reports. These include pre-sale agreements, to verify the demand for and viability of the project; the qualification of project teams, ensuring that the individuals employed are part of professional bodies that are guided by international best practices; and the relevant approvals for development from regulatory authorities.

“We also look at matters such as a company’s legal documents and if the company is tax-compliant. We also look at the track record of the company,” Samuels outlined.

“If it is that the company is newly formed we look at who are behind the company — the directors and the shareholders — and their experience in undertaking the type of business,” he added.

Another critical assessment of a developer’s risk profile is the examination of audited financial statements and statements of affairs for shareholders having more than 10 per cent interest in the company. The banker also pointed out that financial institutions take into consideration the ownership of land on which the construction will take place.

“We also require a surveyor’s ID report for the property, and sometimes we might require a soil test — depending on the type of structure you are planning to build on the land — to determine the weight-bearing capacity of the area where the project is to be built,” Samuels disclosed.

Highlighting that the relationship between developers and financiers does not end with the approval of loans, the JN Group assistant general manager also said that during the implementation phase the banks conduct monitoring activities to ensure projects are rolled out in keeping with their approvals.

“Remember, it is the depositors’ funds which we are lending so we have a fiduciary relationship and responsibility to ensure we lend wisely. We have to ensure that the real estate sector develops in an orderly way, and we are here to support you and to give you the guidance you need,” he said.