A developer must effectively be capable of building a project for cash if it is started on speculation. Lenders are addressing tenant credit and security issues by implementing significant control measures involving approval of prospective tenants and their leases. As an example, lenders may require that prospective tenants have achieved positive cash flow, or require the lender s approval if they have not. Once a project is completed and leased at today s inflated rental rates, developers are faced with the relatively new phenomenon of finding permanent financing for a project with historically high values per square foot. Traditional financing sources become significantly differentiated when lending against these valuations, most likely resulting in the need for a large amount of developer equity to remain in a project, or be required by an investor in the case of acquisition.
Real estate is a cyclical business.
The boom and collapse of the 80s and early 90s has faded and real estate has reached new highs over the last few years. Competition for limited capital sources will continue to demand historical performance, financial strength and an understanding and incorporation of its terms into project underwriting and marketing programs. In order to remain successful across this cycle it is necessary to selectively pursue new opportunities, which are funded in part through careful capital management, including the fracturing and reinvestment of capital from mature assets. Bentall Corp. He is responsible for the sourcing and analysis of Bentall s development projects.