Jamber Corp

Land Developer/Builder Financing

The Good News:

Construction of new homes increased by the biggest percentage in more than two years in April, a rare spot of good news amid the worst downturn in housing in more than two decades.  (As reported by the Associated Press May 17, 2008).  The Commerce Department reported friday that housing construction rose by 8.2% in April to a seasonally adjusted annual rate of 1.03 million units,  while apartment construction rose by 36%.

The Bad News:

(from the same source) Building in the much larger single-family sector of the market fell by 1.7%, the 12th consecutive monthly decline, pushing single-family activity down to a 16 year low. 

"Len Blum, managing director of investment bank Westwood Capital, said the slump in housing will run for another year because of a number of problems, from banks tightening up on lending standards to the reluctance of many people to commit to a home purchase at a time when prices are still falling."

                                                                         --  MercuryNews.com May 17, 2008

You really want to build but a recession may be looming.  You are weighing the good and bad news.  The five year boom followed by the 2+ years of big financial losses, homes that won’t sell, foreclosures and layoffs.  Applications for building permits, considered a good sign for future activity, recorded an increase in April, rising by 4.9% to 978,000 units but still 20% below where they were a year ago………gasp!

The fact remains you are a for profit business, whose goal is to maximize profitability in every way and in any way possible, therefore, business decisions need to be made and carried out.  You need to weigh what success will look like in this environment.  Will success be a function of increasing planned sales production or reducing costs or some of both?   

What can Millennium Mortgage Company do for you? 

Our experience working with developers has given us a keen sense of the protocol that most follow.  A few newer developers get outside their “comfort zone” and are open to new ideas and ways to add more value to the process.

Millennium Mortgage and Jamber Properties can help the new developer and builder add more value to the process every step of the way.  The lending committee’s “roadblock-issues” that are anticipated, addressed and resolved up front, can translate itself into part of your track record of success needed to advance to the next step and the next project.

Since all the commercial lenders are as much at the mercy of the current capital markets as consumers, this has adversely affected values, debt coverage ratios, and invited even more investor scrutiny.

So, which of today’s lenders are congruent with your needs as a developer/builder?  Millennium Mortgage Company, as your broker resource, will narrow the search by addressing the issues than concern lenders most:  whether a property will be profitable, what it will cost and how investors/borrowers will deal with the possibility of financial problems.

LTV ratios are trending down to 40% - 70% (from 2006 levels 70% - 80%).  There are ways to offset this by increasing the projects' value and increasing the Land Residual Value.  Also, we need to make your "exit strategy" both logical and updated.  Whether you plan to go all the way to vertical devlelopment or just through horizontal development, there must be an established market for both. 

Recognizing and addressing these issues will inspire lender confidence and lead to a much easier underwriting process.

TIP$

Green should be your favorite color!

Green?  Not so fast!!!

Green is the color of energy efficiency.  Going Green helps the environment, your company image and your bottom line.  Two items that have a clear impact on the bottom line are higher sales prices and lower operating costs.   However, if those savings come at the expense of higher upfront or development costs, the choice to go green may not be so simple.

The Big Two

Two groups that address this dilemma are the EPA’s Energy Star Program and the Green Building Council’s LEED program, spelled out as Leadership in Energy and Environmental Design.  Builders can incorporate one or both of these standards into their building plans, or they can look to a separate sustainability standard altogether.

Rating System

Energy Star provides an energy-performance rating system and recognizes top performing commercial buildings and homes.  It offers a strategy to measure current energy performance, set goals, track savings and reward improvements.  The rating system can be applied to appliances, construction materials, lighting and more.

The Platinum Standard

LEED serves as a national benchmark for the design, construction and operation of green buildings.  It recognizes performance in five main areas:  sustainable site development, water savings, energy efficiency, materials selection and indoor environmental quality. 

Commercial buildings can receive four different levels of certification:  Certified, Silver, Gold and Platinum.  LEED certification often commands a higher price upon disposition because of their long-term operational savings and higher rental premiums.

An Emerging Market

Eventually, all new commercial buildings may be required to have ecologically friendly features.  Lenders will more readily acknowledge the increased value of environmentally sustainable buildings.  Loan programs will likely be altered to finance such properties.  Such properties could be deemed a better risk and more worthy of funding than those with less-efficient products.  Lenders are seeing increased value in having solid green-building projects in their investment portfolios.

Partnerships

By deciding to go green, many city governments offer developers increased floor-space ratios and lower parking-density requirements.  They may also waive city charges such as impact and permit fees.  In some cases, cities have joined with developers to share parking spaces.  Some municipalities have even provided funds to developers for the infrastructure as wells as other incentives from direct grants, preferential programs and tax incentives.

Top of the Competition

Apart from seeing operational-cost savings, developers are discovering that going green can be a strong marketing tool to stand out from the competition.

For even more details of what Millennium Mortgage can do for you by finding or selling land for development, contact us.

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