This year, the builders left standing won’t necessarily be the ones able to build the best homes – but the ones able to build the best case.
The case, that is, for partnership…with their banks. As a developer you’ll be best served if you enter into 2010 with a new mindset regarding bankers: bankers of 2010 are not just your lenders. They’re your partners.
Work with them. Bankers are looking for ways to cut their losses. If you have a compelling idea, they’ll listen. Give them rational reasons to be receptive to your plans. Consider these five ideas:
1. Take a higher interest rate on loan renewal, but have some of it accrue. Recently I’ve seen more than a few banks accept these terms. Banks, more than anything, want to have a performing loan. Accruing interest and collecting some interest is better than nothing.
2. Defer points and refinancing charges to the back end of the deal. Again, many banks will welcome this as an acceptable alternative to NOTHING. Put it on the table, see what they say. You have nothing to lose.
3. Add new capital to the deal. Banks love new capital. Do whatever it takes to find an investor by offering to pay 20-25% returns. That’s high, but sometimes you have to be willing to pay returns in order to get returns. If it keeps you in the room, it’s worth it.
4. Use your history to prove your future. Don’t overstate your pro forma. Banks respond to sober truth and facts, today more than ever. Be ready to back up your claims with plenty of objective justification. Modest expectations based on solid evidence are far more attractive to banks than grandiose speculations based on gut feeling.
5. $plit profits. An offer to spread the wealth is the ultimate form of making your bank your partner. Your lender is looking for a reason to be in the deal. If all else fails, splitting profits might be the ticket. If it buys your project another lease on life, it’s worth it.
It’s a fact: banks are literally becoming developer’s partners. Perhaps it’s happened before over the years, but not to the large degree that I’m seeing it today. Keep this “partnership,” concept firmly in mind, and let it set the tone for your dealings with lenders going forward.
Good luck, and let us know if you have any questions – or if you can share any brilliant new ideas about partnering with lenders that have worked for you.
GB