For developers who wish to experience consistency of new project starts and work flow, especially in times of uncertainty and economic tumult, a critical sense of security comes from long-term funding relationships with decision makers. These relationships are cultivated over the years, in good times and bad, ensuring consistency of transparency, surety of execution and priority over the competition.
Sometimes underwriting and capital markets at a firm can seem like a Magic 8 Ball that randomly states “the underwriter is on vacation,” “loan declined,” “valuation not reached” and just maybe sometimes, “loan approved.”
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If a borrower doesn’t understand why a decision was made and no one can explain it, it means that the borrower is not dealing with a decision-maker. Unfortunately, many banks and other traditional lenders don’t have discretion over their own loans. The underwriters, vice presidents and even CEOs, might not know what they can approve on a day-to-day basis because they have delegated authority, meaning they have to get approval from their investors prior to funding their loan. When the market gets rough, these different groups will disagree with each other, or send mixed messages. While they are deliberating over your loan, interest rates are likely increasing, parties on the other side are getting impatient and reputations are taking a hit. So, borrowers should be as close as possible to the ultimate decision-maker, and the chain of approvals should be as short as possible.
As a borrower or broker, it is imperative to build and protect relationships. That means being respectful when things go well and when they don’t. A sincere thank you after closing goes a long way as well as doing what you say you are going to do. People in the industry notice these small things and want to work with pleasant people. The right decision-makers won’t always save the deal or offer the best pricing, but given the choice between closing a loan with a stranger or with a repeat trusted lender, the familiar option is typically the best choice for surety of closing in an efficient and timely manner. Execution risk is always top-of-mind for developers and a proven track record is the best mitigant.
In general, construction lenders most willing to originate financing during times of uncertainty are unlevered, private debt funds like Parkview Financial. These firms have wide discretionary powers and clear mandates. Depending on how they are structured, they may excel at speed, or unique deal structures. Every borrower should know a debt fund, because when traditional sources of capital decide to wait out the market, debt funds are oftentimes the only option.
Marty Friedemann is vice president & senior underwriter at Parkview Financial.