Continuity Counts: Strengthening Risk Management from Feasibility to Final Draw

By Larry Manchester, Director of Construction Services

In construction lending, risk doesn’t end at loan closing. In many cases, it begins there. While pre-close due diligence serves as a critical checkpoint, testing the feasibility of a project, the monitoring that follows determines whether those early insights are enforced or forgotten.

The conditions reviewed, assumptions verified, and recommendations made during feasibility only protect a lender if that same understanding carries forward once the first draw is funded. Too often, that connection breaks. Feasibility, monitoring, and draw assessments are often treated as separate services performed by different vendors. On paper, this approach can appear practical, especially for lenders seeking lower costs or constrained by platform-imposed structures. In practice, it fragments the knowledge base that protects both the lender and the borrower.

The most effective risk mitigation strategy is one that connects the front and back ends of the loan process. In other words: the same party that evaluates the project before funding should also monitor it after.

The Problem with Disconnected Oversight

The pre-close project feasibility study is designed to assess project readiness. It accounts for budget adequacy, timeline realism, entitlement gaps, and construction plans. It is not simply a go/no-go analysis; it’s a conditional endorsement. Many reports conclude with “feasible with conditions,” where specific items must be addressed prior to or during construction. These can include:

• Permits still pending at time of review
• Utility letters not yet received
• Plan sets awaiting final approval
• Budgetary assumptions tied to market-rate allowances or deferred owner contributions

These conditions require follow-up. But when post-close monitoring is handed off to a separate party, those follow-ups are at risk of falling through the cracks. Inspectors unfamiliar with the original findings may conduct field visits with no awareness of those conditions. They review what’s visible, but not necessarily what matters most.

Real-World Implications

Consider the following scenarios, all drawn from common industry experiences:

• Permit Assumptions Go Unchecked – At feasibility, the permit set was incomplete. The report noted that building approval was pending based on preliminary plans. The project closed with the assumption that permits would be finalized as drawn. A separate monitoring vendor began inspections post-close but, without knowledge of the permitting caveat, they never validated that the issued permits matched the proposed design. Months later, framing was underway, but changes made during permitting had altered the load-bearing walls. The original cost estimate no longer applied, and the approved budget was insufficient. Risk that could have been mitigated early became a funding concern.
• Material Substitutions Overlooked – The feasibility reviewer accounted for $300,000 in custom cabinetry based on builder representations. The monitoring firm, unaware of the original line-item detail, saw installed cabinets and marked the draw request as complete. In reality, the developer substituted off-the-shelf IKEA products for a fraction of the cost. The project is now materially out of alignment with its appraised value and loan-to-value (LTV) basis, potentially impairing the lender’s collateral position.
• Deferred Owner Contributions Ignored – A borrower committed to funding $280,000 in finish upgrades beyond the lender’s construction budget. The feasibility report acknowledged this as a condition: funds must be verified and available before commencement of vertical work. The post-close inspector, unaware of this nuance, approved draws without confirming whether those funds were ever deposited. If a funding shortfall occurs mid-project, the lender may be left exposed with incomplete collateral.

These gaps in context create exposure for the lender and undermine the integrity of the original approval.

Why Continuity Matters

Unfortunately, these aren’t hypothetical risks. They are the kind of misalignments that emerge when oversight is compartmentalized. Pre-close project feasibility studies are inherently nuanced as they document what’s known, what’s assumed, and what’s unresolved. When the same firm carries that knowledge forward into the monitoring phase, context is preserved.

Continuity between pre- and post-close services enables inspectors to spot not just what’s present but what’s missing; they don’t just note whether flooring is installed, they understand whether it was included in the draw, priced appropriately, and installed per spec. Reviewers don’t just sign off on framing, they consider whether outstanding conditions tied to zoning or engineering have been met.

The result is a more accurate picture of progress, a tighter feedback loop for the lender, and earlier identification of issues before they affect funding or asset value. This continuity supports a more holistic risk management process.

The Cost of Convenience

A growing reliance on commoditized inspections, particularly those driven by photos or remote reporting, has introduced convenience at the cost of context. Lenders are being told that ‘fast’ is good enough. Many of these services rely on third parties who lack construction expertise, or offshore quality control reviewers who aren’t familiar with local codes, building practices, or the project’s history. Lenders who prioritize cost alone may achieve faster turn times, but they also run the risk of overfunding, misaligned valuations, or delayed discovery of scope deviations.

Without direct continuity from feasibility to monitoring, these reviewers are unable to detect whether key conditions were ever met. They may approve draws based solely on visual indicators, without knowing what those indicators are supposed to represent. True risk management requires more than images and checklists. It requires judgment informed by project history.

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Construction lending is dynamic. Budgets shift, scopes evolve, and timelines stretch, but risk doesn’t have to follow suit. When the same provider handles both feasibility and monitoring, risk management becomes continuous proactive discipline. Working with a reputable third-party construction risk management consultant helps ensure that continuity and discipline are maintained across every phase of the project. It gives lenders a clear line of sight, not just into what’s happening on site, but into whether the project is still aligned with the conditions under which it was approved. That alignment is essential. Continuity doesn’t just protect a project, it protects your capital, your borrower relationship, and your reputation for sound, risk-aware lending.

About the Author

Larry Manchester

Director of Construction Services

With more than 30 years of experience in construction risk management, Larry has pioneered innovations that transformed how lenders oversee projects nationwide. He developed the first nationwide construction draw assessment platform and continues to shape best practices in feasibility analysis, funds control, and field services. His forward-thinking approach and deep technical insight have guided thousands of successful real estate and development projects across the country.