The combination of these factors has lead to a shortage of capital to finance new and existing projects. Clifton E. Rodgers, Senior Vice President of Real Estate Roundtable in Washington, D.C. recently stated that borrowing has dropped during 2009 to levels not seen since 1952 and commercial real estate values dropped in the United States from $6.7 trillion in June to $4.7 trillion in November.

With many of the challenges behind us many people have been asking; how do I acquire financing for my project? What are the banks looking for? What are the secrets to acquiring a loan?

The answer to all these questions is very simple: back to the basics and plenty of information.

Banks have returned to focus on the basic principals of lending. These include:
- Background of the company
- Background of the project
- Cash flow of project and borrower

The term real estate developer and professional can be defined in many ways- commercial, residential, industrial, flex building, office space, hotel, urban, suburban, etc. Each one of these can be defined even further. So it is important to help your banker understand the type of development you specialize in, the projects you target, the niche you focus on, what types of real estate projects you have completed, portfolio strength and special skills and professionals on your team. No one knows your company better than the owners.

The second step is to work with your banker to help him understand how the project fits your model and will be successful. Why is this project going to be successful? Define advantages of your property, Define who the competition is and what mitigates the risk.

Understanding the cash flow of a project as well as the borrower is very important to the banks. Real estate values have fluctuated over the last couple of years, which have led Banks to rely less on appraisals. The ability to demonstrate strong cash flow to service property expenses and debt is extremely valuable. Borrowers should draw on the wealth of knowledge and information their realtors have to ensure all parties (Bankers, Appraisers Prospective Tenants) understand the existing cash flow from surrounding projects, potential for the proposed project, and occupancy levels. In addition, a secondary source of cash flow should be identified in the event lease up or construction take longer then expected. This can be from stabilized properties or guarantor resources.

Focusing on the background of the company, background of the project and cash flow of the project will help mitgate risk and structure loans with banks. Borrowers should develop a relationship with a real estate banker who understands their business model and projects.

Andrew D. Johnson, CPA
Senior Vice President
Director of Commercial Real Estate
Metro Bank
3801 Paxton Street
Harrisburg, PA 17111
(717)412-6210
Andrew.Johnson@mymetrobank.com