Funding New Real Estate Developments in a Recession

Funding New Real Estate Developments When a Recession Seems Likely 

The fear that many investors have when the economy appears to be moving toward a recession is that they may be denied funding. In times of inflation and uncertainty, banks tighten credit requirements and slow down lending activity. For investors, fewer loans equate to limited business opportunities. 

When lending activity slows down, commercial real estate financing can be affected more than other sectors because CRE financing typically operates on much shorter term 5 to 7-year loans (unlike the residential real estate market that typically operates on longer term 15 to 30-year loans). So, CRE loans must be refinanced every few years. 

Well, what happens when you are nearing the end of a 5-year term and the bank says “no” to refinancing? What happens when multi-family lending takes a dramatic drop? What happens when a recession seems likely and SBA lending appears to be the only option for commercial investors? 

These signs are often interpreted by investors to mean that it is the wrong time to attempt to fund new developments. 

Contrary to what the media portrays about economic recession, recessions can create advantageous situations for real estate investors – even for new developments. 

Avoid Negativity from the Media, Work with a CRE Financing Partner You Trust 

Recessions are not all doom and gloom like the media portrays them to be. If you listen to the negativity, you are likely to miss out on opportunities to grow your investments and build wealth. At Lincoln James Capital, we believe it is important for investors to hear positive messages of hope – and not manufactured or false hope, but real hope from professionals who have found ways to thrive in times when others falter. In times of recession when options seem limited, we continue to secure financing for investors. 

The process of securing and finalizing a commercial real estate loan is complicated enough when the economy is booming, especially for investors who are extremely busy with other business matters. Uncertainty and negativity can become overwhelming and dissuade investors from pursuing new investments. Don’t let this happen. We partner with investors to prepare the best financial package possible, find and evaluate more financing options, get funding, and close the deal – recession or no recession. 

Strategy for Funding Developments When a Recession Seems Likely  

If you keep up with our blog articles, the following information might sound familiar, but it is certainly worth repeating. The fundamentals of financing are: 

  • Know Your Cost 
  • Know Your Proforma 
  • Know Your Timeline 
  • Develop Your Capital Stack 

Confident CRE Investors Know Their Costs 

There are lots of variables when it comes to costs with commercial real estate. You may be developing a multi-family garden style complex or an office complex. You may be developing in the suburbs or in the city center. Depending on the development, there will be a combination of hard costs – moving dirt (horizontal) and construction (vertical). And there will be a combination of soft costs – entitlements, attorneys, architecture, engineering, and marketing. 

A confident investor who knows their numbers will have a much easier time shopping and evaluating options. 

Confident CRE Investors Know Their Proforma 

Having at least a 3-year proforma is a requirement. In order to secure a CRE loan for a new development, the business will need a debt service coverage ratio of 1.25 or higher. 

Confident CRE Investors Know Their Timeline 

You must know when the new development will reach stabilization – or when your revenue will be realized. Office and retail developments should have pre-leases in order to secure financing. Multi-family developments are the exception and do not need leases in place. 

Confident CRE Investors Develop a Strong Capital Stack 

Your capital stack represents all sources of financing that will be combined to fund the new development. A senior lender is likely to fund 60-75% of the capital depending on the asset class and strength of the sponsor. Lenders will look at the financial strength of the sponsor – their net worth and liquidity. The sponsor should have post-closing liquidity in order to demonstrate to the lender that they have the ability to see the project through to the finish. 

Keep in mind that lenders are not looking to fund someone’s “dream,” they are looking to fund business investments and the sponsor’s net worth and liquidity are the qualifiers for securing a deal. To complete a typical capital stack, a general partner typically brings at least 5%, limited partners make up another 5-15%, and a mezzanine lender could make up part of the funding as well. 

Preparing the strongest possible capital stack and presenting the financial package in the best light will help secure more options and better terms so that you can close your deal and fund your new development. 

Lincoln James Capital can help you find and secure CRE financing with the best terms 

If you have commercial real estate investment opportunities, Lincoln James Capital can help get your deal done. We have extensive market knowledge and can help you make confident decisions. We have a large database of lenders with a wide range of possible terms. Keep in mind, we don’t make more money from higher rates. We get paid to get our clients the loans they need with the best terms (which is not always the best rate) so they can close their deals and continue to build their business and increase wealth. 


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Brigitte Grava

Financial Analyst

Brigitte Grava, an accomplished scholar from the University of Tampa, holds both a Bachelor’s Degree in Economics and a Master’s of Science Degree in Entrepreneurship from her alma mater. Brigitte’s dedication to academic excellence is shown in her performance as an undergraduate student as she was invited to the Adam Smith Economic Honor Society in addition to graduating from her Master’s program at the top her class in 2022. With over 5 years of industry experience, including a specialized focus on mergers and acquisitions during her 3-year tenure at a boutique investment bank, Ms. Grava brings a wealth of financial expertise to her endeavors. Her exceptional execution of economic and financial analyses, coupled with her strategic insight, empowers her to provide invaluable recommendations for business growth and corporate development. Brigitte is skilled at navigating intricate M&A transactions, consistently delivering optimal outcomes for her clientele. Her track record speaks volumes about her ability to handle every facet of these transactions with finesse, resulting in remarkable results for her clients.

Alyssa Beatrice

Director of Marketing

Alyssa Beatrice is the Marketing Director of Lincoln James Capital, leveraging over 7 years of expertise in both B2B and B2C domains. Holding a Bachelor’s Degree in Business Administration with a major in Marketing, Alyssa’s career is driven by innovation, determination, and data-driven results. Her impressive track record showcases numerous successful online and offline marketing campaigns, reflecting her inventive spirit and collaborative team approach. Alyssa’s unwavering passion for achieving exceptional outcomes has made her an invaluable asset to our team at Lincoln James Capital.

Andrew Millis

Commercial Loan Originator

Armed with a bachelor’s degree in business administration, specializing in Personal Finance from the University of Wisconsin Stout, Andrew possesses a wealth of knowledge and expertise in the Commercial Finance industry. With a solid background in community banking spanning 3  years and an additional year as a commercial credit analyst at Bankers Healthcare Group, he has demonstrated exceptional proficiency in the financial domain. Notably, Andrew has also successfully ventured into the real estate sector, establishing three thriving businesses in recent years.

Beyond his professional pursuits, Andrew cherishes quality time with family, friends, and his two beloved dogs. He finds solace in exploring new destinations through travel and engaging in outdoor activities such as hiking, golf, pickleball, and hockey. A true sports aficionado, he ardently supports the Green Bay Packers, Milwaukee Brewers, and Chicago Blackhawks.

Alex Cheng

Senior Vice President

After receiving his Bachelor degree in 1978, Alex started his professional career with a reginal CPA firm in New Orleans as Auditor. In 1980 he moved to Los Angeles to join ABPA, a national employee benefit administration firm.  He was promoted to Accounting Manager when he left the firm in 1988 when he was recruited by Dallas TX based Caltex petroleum Corporation, a JV of Chevron USA and Texaco Oil Company.  Alex served as Director of Finance in various countries, including the Philippines, Greater China (China, Hong Kong and Taiwan) and Australia.  Alex left Caltex in 1995 to start his own accounting firm in Burlington North Carolina.  By 2006 his firm has grown to a regional presence with offices in Cary, Burlington, Greensboro, Charlotte and Rock Hill, SC.  Alex sold his successful practice in December 2006 just before the latest financial meltdown.  Since 2007, operating under the firm name Alliance Consulting Group, Alex has been a financial and management consultant advising clients on complicated fiscal matters and improve overall efficiency in management and operation.  In 2015, Alliance Consulting added digital marketing to its service area to meet the changing landscape of business.  Currently his firm manages private equity funds of Family Offices and other high net worth individuals, with focus on multi-family apartments and purpose-built Student Housing apartments near major universities throughout the country.