Default. It’s the one word no entrepreneur, investor or lender wants to hear. Honest entrepreneurs, investors and lenders all agree that fraud and financial reporting transparency are critical issues that every business must address, but surprisingly enough, we are routinely victimized by fraud in all its ugly forms.
In the CRE development industry, invoice phishing fraud and bank diversion fraud have helped create a fraud cottage industry that costs banks, investors and developers more than $50 billion a year. A staggering sum to be sure…
Expectations for managing fraud and its impact on default risk are apt to change in the post-COVID capital markets. The days of relying on subjective considerations such as experience, reputation and character are going by the wayside because the name of the game is now capital preservation and investment loss risk demands more than greasy assurances.
The investment preferences of capital market investors and lenders can be reasonably expected to demand the adoption of proactive prevention programs as opposed to the failed historical model of mitigation. The reason is simple: mitigation amounts to cold comfort after the loss has already occurred and the victim business is now facing default.
The times are changing and change is the only constant in business and the capital markets.