Bob Chapin does not want to foreclose on builders. The senior vice president of the Atlanta region of SunTrust Banks would much rather keep them solvent and reorganize their debt. But he can’t do it alone.
“Builders have to help us,” Chapin says. “We are under so much pressure—from analysts, stockholders, senior management, federal regulators. … There are good stories to tell out there. We need help telling the story.”
The story he needs to hear is how builders plan to keep from capsizing in this seemingly endless, perfect storm. “Tell me what you’re doing to help sell houses,” he says. “Tell me your plan.” He also needs to know what builders are doing to reduce overhead and generate cash flow. And he wants to hear about it over and over and over again.
“As soon as a builder sells a house, I want to know,” he says. “Send us whatever you have. ... We need help here.”
Banks do need help, says Chuck Shinn, president of Littleton, Colo.–based Lee Evans Group, a nationally recognized management consultant for home builders.
“There’s no liquidity in banks,” he says. “If they look at all their real estate loans, the land is devalued and the loans are devalued. The standing inventory and land will have to be reappraised. When they are, the bank loans will be upside down. They haven’t even recognized the tip of the iceberg yet.”
The bottom line: If you need to restructure loans, do it now. If your lender isn’t cooperative, line up alternative financing. It won’t be easy, but when you’re going under, anything that keeps you afloat is worth grabbing onto.
Plummeting land values and a lack of cash flow are creating more and more desperate financial situations for builders and for their lenders. While both sides are looking out for No. 1, the ultimate goal for each is the same: to remain solvent. Many banks are beginning to realize that the standard operating procedure of foreclosing on these loans won’t help either party. They also know that you can build and sell homes better than they can, and they don’t want to own your half-finished projects any more than you want them to. But it’s up to you to take the initiative to show them that you have a credible plan, that you will be around to execute it, and most of all, that it will be in their best interest.
On The Shoals
Resolving unpaid loans backed by depreciating assets at a time of diminished sales is testing builder-lender relationships.
Getting a lender to renegotiate a loan requires all hands on deck. And when that doesn’t work, help may come from private money lenders.
Learn more about markets featured in this article: Atlanta, GA.