Friday, May 8, 2009

Is this a good sign?

Century 21 Sweyer handles our residential property management. Dave Sweyer and I got off on a tangent while meeting last Tuesday morning about our “friendly neighborhood banks," the conversation turned to heroin dealers and then it really went downhill…
Our business is capital intensive, even the smallest of projects will require some sort of financing. Over the last 6 years we would borrow and pay off at least 1 or 2 loans EVERY MONTH. However, the last construction loan we were able to obtain was in September - more than 8 months ago.

Our credit rating hasn’t changed. No payments missed. No indictments or jail time. We are a pretty predictable risk and while business has slowed we haven't changed how we manage projects or the basic fundamentals of our company.

We have a solid reputation and continue to invest in the community as a whole. In reality, as our company has matured we’ve become more prudent and further adverse to risk (or so we think).

Never-the-less, we hear the same thing over and over, “We are lending money but not for the types of projects you are doing.” And we are not alone. I'd be upset if other builders in the area were able to borrow - but they are dealing with the same story.

The 'new economy' has required business owners to think differently about how we manage in a world without capital. The real shocks came in 4Q/08 when banks not only stopped lending; they started asking for their money back.

I received several phone calls from our lenders between September and November of last year and each of those conversations went a little like this:

"Hey Dave, it's the bank - you know how we have been lending you all that money for the past dozen years or so? Well we don’t lend money anymore. Yeah, sorry about that, uh huh, yeah, and by the way, we need all of the money you currently owe us, back - and we need it by this Friday."

"What? Who is this really?”

So fast forward to this week and my conversation with Sweyer because I think he explains what everyone in our industry is currently feeling:

"Banks were giving anybody and everybody heroin, as much as they needed and as cheap as they could. Business owners (and especially those in the real estate industry) began to shift their business model to that of relying on this heroin. Then instead of slowing down the 'fixes' the banks just stopped and if the story ended there it may have been a painful (but survivable) rehab process but it got a little worse because then the lenders started showing up at your house and taking back whatever drugs (money) you may still have had left!"

More personally I have slept less and worked harder in the last 3 months than I can ever recall – including the initial, very thrifty and painful start up years of our company. I don't mind the hard work because it feels good and I believe as though I have accomplished ‘something’ but when the lenders started making their financial problems MY financial problems it was hard to think about anything else.

And I’ll take my beatings for relying on financial institutions to grow my business but c’mon, I can’t take the blame for creating the entire sub-prime mortgage melt down all by myself!

Fortunately I have been blessed with a reasonable sense of perspective (thanks Mom), a tremendous amount of support from my family (thanks Kat), an incredible gift for talking my way out of even the worst jams and most importantly, an incredible interest in a profession that I love.

We know our company must adapt, survive, stay creative and, most importantly, press forward [relentlessly]. We are doing that and more to stay relevant and in play.

So imagine my shock when I got a call from SunTrust this week. They were one of our old lenders (I say old lender because they no longer lend anymore; and my ‘banker’ that works there primarily just does collections now).

SunTrust is actually the lender who pretty much helped us build the company we are today – a relationship I have always been proud to have. Our most aggressive, far reaching and successful projects Downtown were funded by them. [Laurel Oaks, Brooklyn House, Modern Baking Co to name a few] We enjoyed the relationship and like any sensible business owner we were not only loyal – we were emphatic about making sure they were paid on time, in full and ahead of anyone else.

Well, we have had our share of ‘go-rounds’ (to put it mildly) with SunTrust over the past few months and as much as I wanted to tell them to ‘go to Hell’ I have taken the wisdom of Warren Buffett from his recent biography ‘The Snowball’ and recognized that I should focus on the issues at hand today because I could always, tell them to ‘go to Hell’ tomorrow.

I’m also not an idiot. Eventually SunTrust will need to begin lending money again and I know I will need to borrow it. We all still have work to do and problems to solve. Sticking our heads in the proverbial sand is not an option.

So the call comes in and my first thought is like, “Now what?”

“Hey Dave, its Rob at SunTrust, how are you doing?”


“That’s good, that’s good. Umm, listen, we wanted to ask you about something and it would mean a lot to us if you would consider our request.”

Yeah, like I’m going to have a choice, I murmur to myself, “Sure Rob, what do you need?”

“Well we’d like to put a sign on your
RiverFront project Downtown on the River. You know, one of those big signs that says, ‘Financing by SunTrust’.”

“This is a joke right? I mean a sign on the jobsite would make it look like you were doing loans, isn’t that like false advertising?”

[nervous laughter]

“Listen, we would be glad to have your sign on our jobsite. After all, we are all in this together and the sooner people see banks and businesses working together we all start to win the economic war right?”

“Gee whiz Dave, you truly are a team player – we really appreciate it.”

“Sure, yeah, no problem at all – we’ll put it right up front where everyone can see it. Just one thing – we will need to meet with your legal staff and make sure we get the documentation and releases in order.”


“Yeah, you know, documentation, conditions.”


“Absolutely, we are going to need pages of documentation protecting us from unforeseen or even foreseen circumstances – like all the grief we are going to take from every other borrower in town who is going to call me when they see it. Even worse, the vandalism the sign will likely get. Spray paint, toilet paper, eggs. It’s bound to be a real mess, you know.”

“Mmm, yeah, I see what you mean. We hadn’t thought about that. How about if we just give you a quarter point off your next loan with us?”


Disclaimer: This blog and all portrayal of characters and events are fictional. Any resemblance to actual persons or companies, living or bailed out, is purely coincidental."

1 comment:

Bill Hunter said...

great post - I need to link to your blog
Bill Hunter