What a lender or investor should be able to read, and what they should not

Every construction loan agreement and every joint venture agreement gives someone outside the owner's team the right to see how the project is going. The lender has a monitoring consultant. The equity partner has a quarterly call. Both want numbers, and both will eventually ask for more than the pay application.

The owner's instinct is either to share everything or to share as little as possible. Neither is right. This post sorts the owner's GMP record into what outside parties should be able to read, what they should get on request, and what is the owner's working file and should stay that way.

What the lender is entitled to and what it actually needs

Check your loan agreement for the reporting covenant. Most require a monthly draw package with the G702 and G703, lien waivers, a budget to actual comparison, and a statement that the loan remains in balance. Some add a right to inspect the books. The monitoring consultant reads all of it and reports to the lender on whether the cost to complete is funded.

What the lender needs from the GMP record, beyond the draw package, is short. The anticipated final cost, including pending change orders. Contingency remaining, both contractor and owner, with an exhaustion date. Executed change orders against the GMP and the cause split, because a run of owner scope changes means something different from a run of design gaps. That is three lines. A lender who gets those three lines every month, consistently computed, rarely asks for more.

What the equity partner needs that the lender does not

The equity partner carries the overrun after the owner's contingency is gone, so it cares about exposure, not only position. It should see the change order register with causes, the pending PCO total, and the allowance register with projected variances. It should also see the projected shared savings pool, because that number reaches the waterfall at closeout.

On a fictional $72 million office building with an institutional equity partner, the owner might share a monthly page that shows anticipated final cost, a sensitivity range if the open PCOs land high or low, contingency exhaustion dates for both funds, and the projected savings pool under the contract's split. The partner can read that page in five minutes and knows whether a capital call is likely. That is the right level of detail.

Read only, with history

Outside parties should be able to read, not edit. They should also be able to see last month's figures beside this month's, because the movement is the information. A page that shows only the current position invites the question of what changed, and that question is better answered by the record than by a phone call.

What should stay in the owner's working file

Some of the owner's record is working material. Notes on whether a change order cause is disputed with the contractor. Draft positions on a design gap recovery against the architect. The owner's internal assessment of which allowances are likely to overrun and by how much before the contractor has submitted a reconciliation. Flags that have been raised and not yet resolved.

Those belong to the owner. Sharing them prematurely with a lender can trigger a covenant conversation about an exposure the owner is still working to reduce. Sharing them with an equity partner can create a negotiation before the facts are known. The rule is that outside parties see the position and the executed record. They see the owner's judgment when the owner has finished forming it.

How access should be structured

The practical problem is that most owners keep the position in a spreadsheet, and a spreadsheet cannot be shared partially. The owner either sends a PDF extract, which is out of date on arrival, or sends the file, which includes the working notes. Both happen every month on most projects.

Costwitness separates the two. The owner's ledger holds everything, including flags and notes. A guest view for a lender or investor shows the agreed lines, read only, with history, and nothing else. Which lines a given guest sees is the owner's choice, and the record shows who looked at what. The owner keeps the working file. The outside party gets a consistent page every month.

In the product

Monthly owner report, Anticipated final cost, Shared savings. Free tool: Change Order Exposure, Shared Savings Calculator.

Keep reading

Earlier: Your first GMP contract: a reading order for first time owners. Later: Multifamily developers: the GMP on a 200 unit building. All articles on by owner type.