Real Estate Development: Reassess Some Basic Risks as a Developer, Contractor, or Investor

This article in Construction Business Owner is a timely reminder to reassess the risks that you face in the real estate development space, whether as a developer, contractor, investor, or otherwise. It recommends, among other things, that you:

• Get an updated property assessment to check for gaps in your insurance coverage, such as builder’s risk, installation floater coverage, and contractor’s equipment insurance
• Reassess your emergency response and business continuity plans
• Confirm that your business interruption insurance is adequate for the longer delays that we face today
• Focus on regular safety training, as the BLS reports that more than 25% of workplace injuries are tied to first-year employee

Here are two other areas I recommend you focus on:

1. Reassess the dispute resolution provisions in your agreements.
   • If you’ve had any recent disputes or followed any of your competitors’ disputes, are you satisfied with the procedures in your docs?
   • Do you want to tighten up your arbitration provisions?
   • Would you rather fight it out in court and not go to arbitration?
   • Do you want the loser to pay for attorneys’ fees and costs, or would you prefer that everyone pay their own fees?
   • Think through whether you need to line up the dispute resolution provisions between different agreements relating to the same area, such as your design contracts, development agreements, construction contracts, and subcontracts.
2. How do your force majeure provisions look?
   • Do they appropriately allocate risk between the various players in your deal?
   • Are there any unintentional gaps between force majeure in your loan docs, equity docs, development agreements, construction contracts, or subcontracts? 
   • Are you complying with any notice requirements in your force majeure provisions? You don’t want to get to a project deadline and realize you inadvertently waived valid force majeure delays.

Hopefully this gives you a few things to think about as you navigate these fun times in the development industry. 

With the industry primed for growth, one quality will continue to separate the most successful businesses. Contractors who understand emerging risks — and implement strategies to mitigate them — will be better prepared to meet schedules and manage costs.

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