Abstract
Usually, investors and lenders try to identify potential nonperforming acquisition-development-construction (ADC) loans by examining financial ratios like loan-to-value (L-V) ratios and debt-coverage ratios. Statistical evidence shows that there is a greater correlation between nonperformance and ratios based on actual project cost than between nonperformance and projected income-based ratios. The 38-venture study showed no correlation between L-V ratios and default. In the study, L-V ratios for performing loan, extended (modified) loans, and nonperforming loans were virtually all the same. The 38-venture study supports the hypothesis that loan-to-hard-cost (L-H) and hard-costs-to-value (H-V) ratios can serve as a means of discriminating among performing, extended, and nonperforming loans. Univariate analysis showed significant correlation between L-H ratios and ADC loan default to the database.