Perception Is Reality in How Lenders See Builders
More than ever, creditworthiness is in the eye of the beholder, says one financial consultant.
A design center can be a good tool to help a builder showcase and market its houses and communities. But will the cost of such a center make sense to lenders when that builder needs to restructure its debt?
Brad Foster cautions that such a facility “is putting money into something [builders] can’t sell.” Considerations about generating cash flow, he contends, must drive the business plans of any builder that eventually will need to tap outside lending sources to refinance or expand.
Foster, whose past experiences include executive stints with several builders including serving as interim CFO with Orleans Homebuilders, is now managing director with the corporate finance and restructuring practice of FTI Consulting, with offices in Baltimore and West Palm Beach.
He spoke with Builder recently about what builders should be thinking about when they’re looking to refinance their operations.
Foster sees a regulatory climate that, while easing a bit lately, has an agenda to “keep the clamps” on lending practices within the housing arena. This environment is being affected by new lending standards for qualified mortgages and rules that determine whether a residential mortgage is qualified based primarily on a borrower’s ability to repay. Foster believes the government has “overcorrected” for past lending excesses, to the point where mortgage loans are becoming harder for banks to remarket to investors. And the relative ability of borrowers to secure mortgages is a key factor in how quickly and broadly the housing market recovers.