While demand among borrowers remains high, lenders have become extremely selective of the projects for which they grant funding. Even the most experienced and sophisticated borrowers have to bring much more liquidity to the table than they did even six months ago. Lenders are also becoming much more aggressive in stress testing borrowers’ projections — sometimes doubling and even tripling the “time to sale” assumptions, deeply discounting appraised values, etc.

Hardest hit is residential development. Problems in the housing sector — from declining values for primary residences to the near total absence of a viable investor owned and second home market — is forcing lenders to stretch their underwriting models to accommodate lengthy development periods. Lenders are now asking questions such as, “What would happen if the property needs to be carried for a couple of years longer?” 

Despite these various barriers, some developers are finding outstanding opportunities amidst the chaos. Deals are being recapitalized to recognize current market realities and those developers fortunate enough to have capital resources or debt capacity have the pick of the litter when bidding on deals. Developers who have kept a clean and strategic portfolio are now better positioned for financing from the more selective lenders. In vying for funding, developers who present a clear-cut, focused approach to their projects, a clearly defined and supportable exit strategy along with a solid track record will certainly get more attention than their competitors.

Survival of the fittest is has never been more apparent than during this time of intense competition for financing. Borrowers with sound investment plans, a good exit strategy and a solid cash position are poised to rise above the competition and succeed in this unpredictable market.