David Guerra
Bankers have little appetite for speculation
By R. David Guerra
President & CEO IBC Bank-McAllen
Since joining IBC Bank in 1981, and even before that in my role as a national bank examiner for the U.S. Treasury, I’ve seen a lot of market cycles. Trends come and go, financial services become fashionable and then fall away, financing is readily available and then the market tightens.
That’s the direction the marketplace is moving now. The pendulum in construction and development lending is swinging back toward traditional underwriting. Commercial and land development is now trending away from the local, thinly capitalized developers in favor of the larger, institutional developers with solid track records. The same trend is happening with homebuilders. In other words, credit in 2011 will be available only to the credit worthy.
Before the recession, many lenders provided credit based upon historically high loan-to-value ratios that made them more like equity partners than lenders. That has fundamentally changed. Be it commercial or residential construction, traditional upfront cash equity injections by the borrower are now the norm with any commercial loan facility.
In today’s world, real estate investors can no longer be optionees, they have to actually own the property. That’s causing a shift in the marketplace, both commercial and residential, toward large, institutional players who have the capital to meet those requirements.
Lender’s have little appetite for speculation; speculative construction, speculative investing. I don’t see that changing anytime soon.
Personal guarantees of debt are again the norm. It’s not the old, “I’ll put up the equity but I’m not going to guarantee the loan. If it doesn’t work, the lender just takes back the property.”
Today, personal guarantees are required. In the past many lenders allowed ...
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