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Financing construction in unsettled market.

What does it take to close the construction deal in today's unsettled market? Service, service, service, not location, is crucial in the existing financial climate.

For all builders "out there" looking for project financing, I can tell you that there is construction money available for both bridge and permanent financing. A large percentage of clients and developers that seek my expertise, are unable to secure any construction financing at all, and are satisfied with short term bridge loans to start their projects. This applies to owner-occupied buildings for businesses that are well-established, with significant cashflow. Most of these borrowers are looking for $3 million to $5 million, and have already invested significant personal funds to start their projects.

Any borrower who is satisfied with bridge financing, hoping that permanent financing will "fall into place" at a later date, is inviting further trouble. Most of my clients in these situations do not strategize the transaction in their best interests, nor do they think it is possible.

The best route for the borrower who wants construction and permanent financing, is to finance the entire transaction through the same lender. I do this to save my clients both time and money; this strategy will eliminate further problems that a borrower must face one year "down the road."

I have had the most "vanilla" clients, in owner-occupied buildings, seek my expertise, after many unsuccessful attempts in converting their short term construction loans to permanent financing. In all of these situations, the original construction loans were funded through the borrower's own local bank, where there was a long-term relationship and business account. These lenders were unable to service their existing client base and convert the notes to long term, permanent financing. In addition, all of these borrowers have well-established businesses with strong cash-flow and impressive track records.

The difference between success and failure often occurs in the early stages of "targeting" the right lender for completion of the entire transaction. The "easy route" is not in the best interests of my client. A shrewd dealmaker must be able to conceptualize ideas for all construction financing, be very creative, and still apply basic principles for follow through of the entire project. Every situation is unique and must be evaluated from a new perspective. It is very much of a "dissecting" process. Both attention to details and demand for excellence is crucial for each project's success. This is where most construction deals get "lost." A limited scope will only yield limited results !

Remember, a closed deal must satisfy two parties, both borrower and lender. Be certain of a good "fit." The wrong marriage is costly; time is our most important commodity. Each closed deal has a life span; any deal that is taking too long will never close. Every financial source has a unique lending persona; be sure you understand this in strategizing and negotiating the deal. A keen ability to read both borrower and lender is crucial; this can make or break a deal. A successful deal-maker must be able to orchestrate the dynamics of the deal; be a leader and know how to motivate others.

I have closed many complex construction loans over the years, many involving difficult environmental problems in the construction of gasoline stations. In all of these situations, the ability to orchestrate, organize and follow through with details is the difference between success and failure. In each of these projects, I have always structured both the construction and permanent financing as one transaction, with the same lender, for my clients. The same principles apply in today's market.

Each deal requires a lot of juice. Be committed to the tenacious navigating that success entails. A true entrepreneur, especially in this business, knows that there is never a straight path. Recognize what it takes to accomplish the "seemingly" impossible and deliver what you promise. Your reputation is your greatest asset; I do not see much credibility in anyone who seems limited by their own efforts.

Believe in your project even if everyone tells you it looks impossible. Have the ability to follow through with an idea and create "something from nothing." Be a builder of concepts. These are the basic principles for successfully financing any difficult construction projects.

Last, but certainly not least in financing construction projects is presentation. One of the most difficult tasks for most people is getting organized. I organize my clients and recognize the importance of presentation. Pay attention to details and be prepared to invest considerable time for a return on your investment.

There must be reciprocity between each key player or the deal will falter. Mastering this process is both an art, and crucial. A deal that is moving forward has vitality, as does its broker. I expect a momentum and consistent flow of paperwork from client to broker and broker to lender in the chain of command. A fast turn-around is significant in consummating the transaction. The rest becomes history until the next construction project; the difference between success and failure is dreaming and doing!
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Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Banking & Finance
Author:Paige, Susanne L.
Publication:Real Estate Weekly
Date:Apr 21, 1993
Previous Article:Wilrock arranges sale of 27 Park Pl.
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