Needed: A new normal in building.

• Position: Construction Industry

For commercial construction lenders, 2009 was bleak and, so far, 2010 is looking bleaker still. To date, there have been more than 19,600 distressed commercial properties in 50 of the largest U.S. real estate markets. A combination of falling property values and recession-fueled cash flow difficulties have forced property owners and their lenders into an unenviable position--either lenders must fund additional monies to the owners of partially completed projects (unadvisable), or take over the projects themselves (possibly worse). With the glory days of free-flowing credit and robust markets a dim and fading memory, lenders need a way to keep the I-need-more-cash-to-finish-this-building scenario from playing out again and again.

Barry LePatner--author of Roadblock: America's Failing Infrastructure and the Way Forward and Broken Buildings, Busted Budgets: How to Fix America's Trillion-Dollar Construction Industry--says he has a solution. Lenders and project owners need to accept a new paradigm for building, one that does not allow cost overruns and missed deadlines to derail project budgets and threaten the integrity of tomorrow's construction lending practices. "In the U.S., construction projects are constantly plagued by these two problems," he explains. "The Big Dig in Boston and the newly built stadiums for the New York Mets and Yankees are perfect examples of this, but today we possess the tools to halt these overruns."

[ILLUSTRATION OMITTED]

A glance back at recent months certainly shows an urgent need for reform. The amount of distressed commercial real estate properties in the U.S. has reached a record $180,000,000,000, documents a report by the New York-based research firm Real Capital Analytics. Most specialists in the field see more of the same through the rest of 2010.

As of late 2009, more than 400 major buildings under construction in New York City alone had been identified as distressed, forcing their lenders to renegotiate loan terms or assume control of the projects altogether. Across the U.S., major projects such as the Fountainebleu resort in Las Vegas and the massive Destiny USA project in Syracuse, N.Y., have run out of money and into financing problems--and things are likely to get worse before they get better.

Just consider a few recent findings. A November 2009 article in Investor's Business Daily reports that, for the third quarter of 2009, construction loan delinquencies, i.e., those more than 30 days past due, rose...