Bank financing is playing by new rules.

Are you a small developer? Ego not withstanding, you are if you don't have access to public funds. It is important to understand that the ground rules in obtaining bank financing have changed - solely because the banks no longer play by the old rules.

Gone are the days when you could bring your friendly neighborhood banker to lunch and, on the back of a napkin, describe your plans and secure financing for your favorite project. The bankers (and banks) who lent money on that basis are no longer in business and the regulators of the banking industry now enforce two rules:

*The bank will take no risk;

*And in God and the U.S. Treasury we trust;

All others are suspect-especially real estate developers.

These rules are not new. In the 1980s, many bankers just, forgot the?m. We in the building business must understand that the strict enforcement of bank regulations by outside authorities is forcing us to change the ground rules by which we develop our properties.

If we are to obtain the financing we need, we must conform our development plans to the strict-enforcement environment in which we now find ourselves. We can no longer rely on sloppy bank processes or personal relations to obtain our loans.

Remember, banks are still - and will be for a long time - the primary source of funding for small developers. Therefore, We must carefully evaluate our projects and eliminate the dreaded "bank-approval killers." Financial time bombs in site plans are the biggest of these killers." A financial time bomb is a development feature such as a long, winding entrance-way or a recreational facility that requires bank money, but cannot be repaid until after completion of the first natural phase. They must be assiduously avoided, if possible.

Another "bank-approval killer" is the poorly-conceived condominium or homeowner association document. Banks will not finance a development without an adequate end-loan package, and.end-loan packages are hard to come by if the condo or homeowner association's structure is poor. Too many developers pay very little attention to this critical element of the planning process often leaving the full design of the condominium to their attorney. Developers must thoroughly understand both the profitability and the cash flow of their project. Most developers believe they understand the difference between these two measures of financial health, but in many cases, the understanding is surface only.

The developer must be able to demonstrate to a banker that the project is not only profitable, but that it can support itself on a day-to-day or week-to-week basis as well. Developers must understand that a full and comprehensive financial plan is as important a document to the success of a project as the engineering and architectural drawings.

The developer must spend time and money on the pre-development phase of the project. Fortunately, there is a growing understanding among real estate professionals that clients can no longer pay up-front fees. As a result, many developers and professionals are willing to take deferred payment terms or equity positions in worthy projects. If the site plan is conceptually good, the developer should have no problem persuading his development team to invest some sweat equity.

In a dynamic world, rules always change, but we live in today's world and must abide by today's rules. Real estate is a cyclical industry and people seem to have short memories. The question is, will the strict regulation environment ever ease? The answer is still unclear.