With the Federal Deposit Insurance Corp. holding lenders to tighter capitalization standards, commercial developers in search of project financing are facing an uphill battle.
In fact, loan balances at commercial banks fell at the fastest rate in at least 25 years during the third quarter, the FDIC reported last week.
On a national basis, outstanding loans have fallen every quarter since the fall of 2008, and without help from the private sector, economists have expressed concerns that a taxpayer-financed recovery is not sustainable.
That’s why developers like Colorado Springs-based Hammers Construction co-owners Steve and David Hammers are perhaps symbolic of how the tough-minded small business engine will help restore the country’s economic health.
Their project, the 82-acre Claremont Business Park, began five years ago and is 54 percent complete. During 2008, however, the industrial park’s forward progress almost came to a halt because of spiraling construction materials costs, stalled buyers and tighter credit.
“We had our worst year in history in 2008. But so far for 2009 we’re double last year’s revenue,” Steve Hammers said, crediting Mile High Bank, the project’s master lender for “stepping up” and providing financing for the company’s prospective lot and new commercial building buyers.
Of course, in order to attract or maintain a strong lending relationship, the veteran design/build and development team had to rethink its business model.
When it was time to refinance, for example, Hammers had to agree to provide what the lender needed: cash flow and sales.
“We also had to have a business plan they could believe in — and we knew what we had to do to help them meet federal regulator guidelines,” he said. “Fortunately they were in good enough shape — and they’re smart enough to recognize that by facilitating loans to our customers, they help us make sales. That allows us to pay on our loans.”
But the company did have to do some streamlining.
“We’re down to about 10 people,” Hammers said. “We also understand the impact of lower appraisals in a declining market on what we could borrow. They agreed to provide financing for qualified buyers in order to keep sales coming in. You don’t find many lenders out there like them these days. For a qualified buyer, they’ll even lend with 20 percent down.”
Some business owners with money in the bank and an eye for a good investment share seem to share Hammers’ determination to do business, recession or not.
One of the company’s recent sales was a design/build contract for a 5,000-square-foot pre-engineered metal building to house Hazardous Waste Technology, a local asbestos removal contractor.
Company co-owners Gene and Joan Meeks had been leasing space in a building on North Prospect Street, but based on contracts with city, military, education, commercial and residential clients, decided to move ahead on a new building at Claremont Business Park.
Asked why the 20-year Colorado Springs firm decided to expand during a recession, Gene Meeks cited the need for additional space and for “something nicer.”
“We owned a large building down on Delta Place years ago — it was just too much for us so we ended up selling and leasing space in an older building,” he said. “It’s been OK, but since we spend 10 to 12 hours there a day, we wanted a nicer place to work. We’ve built a good business … and we’ve been planning this for a long time.”
HWT financed the building’s $554,000 cost through the Mile High Bank — Hammers’ master lender.
Fortunately for the buyers, 2009 construction labor and materials costs are down 20 percent to 25 percent, Hammers said.
“Last year, the prices on copper, steel and other materials were still high — and we still carried quite a bit of overhead,” he said. “We’re running leaner now with fewer employees, and prices have come down. It’s actually a great time for them to build — especially a pre-engineered metal building that’s customized and upgraded.”
Based on financing and discounted pricing, Meeks hopes to begin work on an additional 350-unit, 54,000-square-foot mini-storage project later this year in the business park that will serve families near Peterson Air Force Base.
And the Meeks’ buildings are not the only items on Hammers’ active project list.
In addition to a new Conoco gas station at the corner of Meadowbrook and Marksheffel roads, Valley Crest, a national landscape maintenance contractor interested in opening a Colorado Springs office, just paid cash for two lots, one for an office/warehouse building and the other for yard storage and investment.
Tyson Masonry also has purchased two additional lots, in anticipation of an eventual economic turnaround.
“They’ll own the dirt which will make it easier for them to build and expand in the future,” Hammers said.
But the real secret to success in today’s tough environment, he said, is for a developer to find a lender who shares a vision, believes in what you’re doing and has the ability to lend.
“It’s interesting out there,” Hammers said. “We wouldn’t be this busy with eight buildings coming out of the ground right now if the money and the great terms weren’t there.”