Develop Multiple Banking Relationships - Posted by ray@lcorn
Posted by ray@lcorn on July 24, 2009 at 10:19:47:
I agree with Brandon. However, your conduit loan likely has a restriction against seconds, so cross-collateralization is out, and mezz lending is non-existent at the moment. You’ll need a business plan and the right type of bank to get what you want.
Investors have to understand that the current conditions have left banks as the only source of debt capital for real estate, and the banks are under greater scrutiny than ever before. As such, that means we have to adapt our business model to accommodate the bank’s requirements. That’s not as tough as it sounds.
First, find the right bank. Here’s a hint, it won’t be BoA, Wells Fargo or Citi. You’re looking for strong community banks with solid balance sheets. Then you have to pre-qualify them as to the type of lending they do. Easiest way to do that is read their annual report, the 10-K available on sites like finance.yahoo.com. It will provide the breakdown of their loan portfolio by type, and you’ll easily see whether ComRE has a heavy percentage of assets.
Next, get an introduction to the highest ranking officer in the bank as you can find, preferably an Executive VP, the CEO or other senior management. Your attorney(s), accountant(s), friends and associates are the best source of introductions. Arrange a lunch or meeting. The senior official won’t be the person evaluating your deals, but if you meet and find that their bank is interested in funding commercial RE (which you already know from the 10k) deals then they will introduce you to the junior officer that will do the real work.
Think about the difference in perception… rather than walking in off the street and being shuffled from desk-to-desk on your way to the junior loan officer, a senior management position called them up and said take care of you. Now you’re a known quantity, not a potential time-waster, and the real work starts.
This is where your business plan and financial statements, income tax returns, etc. need to be presented in a coherent, organized format. I have a prepared package for our company written and organized as a presentation in print. It includes brief background of the principals, pictures and descriptions of properties currently owned, a discussion of how we run the business (e.g. operating reports, outside professionals, etc.) past project descriptions, and a summary of our strategic plan. (This package does not include income tax returns, operating statements or any other detail. That comes later) It’s an overview, designed to entice the reader and arouse curiosity. My brother Randy calls it “banker porn”. They love having someone that gives them what they need before they ask for it. The advantage to me is that I can control how they see it, and when.
Then you’re ready to talk about using your equity and experience to pave the way for future deals, a working credit line or any number of account relationships. It takes some time and effort, but the payoff is the cheapest partner you’ll ever find.
ray