Draw administration as a service, and I can't work out who pays for it

I've spent four months on this. The idea is draw administration for small developers, the 10 to 40 unit range, people building one or two projects who don't have an in-house construction accountant. The work is assembling the draw package, lien waivers, sworn statements, reconciling the schedule of values against actual spend, chasing the inspector, and getting the wire out on time.

I've talked to nine developers in that size range. Eight said the pain is real. A late draw costs them GC goodwill and sometimes a demobilization. Zero of them wanted to pay for it as a monthly retainer, because their project has a defined life and they hate adding a fixed soft cost line that the lender will question.

So the pricing question. Per draw, say $1,200 to $1,800 per package, on a project with 14 draws over 16 months, gets me $20k a project. I'd need 12 to 15 active projects to make it a business and there aren't 15 projects starting a year in my market right now, which is the whole problem with starting a service in a sector where starts are down this hard.

Option A is stay local and add lender-side work, since banks have the same reconciliation problem from the other direction. Option B is go remote and national on the developer side. Option A has a conflict issue I haven't resolved. Option B means I'm competing with software.

Answer

1stephen_ok9CO2CPRO6

The conflict issue in Option A is smaller than you think and the revenue is much better. Banks pay for construction loan administration as a matter of course, they already have a line item for it, and the fee is usually passed through to the borrower in the loan documents. That means you get paid without the borrower having to voluntarily create a new soft cost, which is exactly the objection your nine developers gave you.

The conflict is real if you're the borrower's agent and the bank's inspector on the same deal. Don't do both on one project. Take lender assignments in one set of relationships and developer assignments in another, disclose it in your engagement letter, and it's a normal arrangement. Any conflict language should get looked at by a lawyer once, then it's boilerplate.

On the market size problem, you've identified something real. Starts falling through 2026 means fewer projects, but the lenders still have the existing pipeline to administer and their internal staffing gets cut first in a slow period. That's your opening. A regional bank with eight construction loans and one departing loan administrator is a better prospect right now than any developer.

What I'd change about your pricing is the per-draw structure. Lenders think in basis points on the loan or a flat annual admin fee per loan. Quote it the way they already budget it. Per-draw invoicing gets you into an approval queue every month and slow-pays you.

Draw administration as a service, and I can't work out who pays for it

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