Sustainable Land Development Today - November/December 2008 - (Page 10)

THE BOTTOMLINE “Will You Still Love Me Tomorrow?” By Lou Ann Frederick ith so many relationships strained these days, I am reminded of that line from a popular song. Everyone is trying to find a way to manage through these difficult economic times. Our frustration manifests itself in different ways. Maybe you’ve had a quarrel with a colleague or sent an uncharacteristically stern email. You worry about having the resources to meet a client’s expectations. While we try to make the proverbial lemonade, we realize the answers of doing business today are not as clear as they used to be. Times have changed in our industry. The developer/client has been accustomed to getting funding from key sources. Long-term financing by banks and seed or venture capital was “easy” money to get (with a few strings attached). Now, it’s no longer there. Projects were financed in the short-term on open credit through the consultants who worked against their own payrolls at the beginning of the projects. Now, neither source of capital stands ready to launch projects with their own money. The lender/client was accustomed to garnering a strong ROI, ROA, large growth portfolios of real estate, and fast turnover of investment capital. No one worried about having enough reserve for potential bad debt and impairment of values. Now, we have the precipitous drop of events inside of the economy. The consultant/client was accustomed to high profit margins, cash payments in less than 120 days and partnerships with clients that would return to them for successive projects without expending marketing efforts. Now, W there are not enough private- or public sector projects in the U.S. to feed the consultant pool. It’s a fairly bleak picture and nobody’s expectations are being met. So then, how do we get back to the place where we still love each other and building can begin anew? The economic stimulus package will help the banks make some loans. We all know the benchmarks for qualifying for “new money” have moved away from previously sought goals of: 25-50 percent return, turning the loans in less than 18 months and no security beyond the land itself. Contrast that to today where the lender (if you can find one) is looking for projects that will yield triple their investment over a longer period of time with personal guarantees by the principals/agents and assets other than land. Tip: Provide evidence that your potential project meets these new parameters. Business plans, as presented, must be more than a project pro-forma. Lenders are looking for C-corporations ahead of LLC’s for obvious reasons. They want high net worth people behind the project and a proven team that has been together more than a year. If your balance sheet is weak, shore it up. That firmly means we/you have to spend less on costs and manage details effectively. Match yourself to the right bank. Tip: Interview and research lender stability and requirements. What if this isn’t possible? What if you have a great potential project and know that now is the perfect time to go forward? You don’t have the luxury of lining up those factors. Maybe you could partner with a consultant who can invest now and wait for the market to improve. Remember, I said partner. It is particularly important to know that risk shared is much more palatable to everyone so plan to put up your own money as well and share the rewards. Tip: Start with consultant/entrepreneurs that have a track record. Lastly, look at the project more creatively; what is unique about your proposal? If you cannot honestly say what differentiates this project from the rest, it won’t get very far in securing capital. If we are all a lot more open minded to doing business under a changed model, I believe client expectations can be met. Will you still love me tomorrow? Only if you and I change the way we have been trying to make lemonade. SLDT About the author: Lou Ann Frederick is SVP/CFO/Principal of Hall & Foreman Inc. Irvine, California. She can be reached at: (714) 665-4547 or LFrederick@hfinc.com. 10 November/December 2008 Sustainable Land Development Today

Table of Contents Feed for the Digital Edition of Sustainable Land Development Today - November/December 2008

Sustainable Land Development Today - November/December 2008 Contents Our Voice Editorial Board SLDT Resources The BottomLine Go Forth and Tread Lightly on the Land It’s About Name Recognition Managing Risk in the Sustainable Building Frontier Industry Spotlight Achieving Sustainable Land Development Worthy of Recognition Stormwater Wastewater Erosion Control Innovation Classifieds Advertiser Index Last Word

Sustainable Land Development Today - November/December 2008

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