Generally speaking, the tendency for developers is to undercapitalize and, for some lenders, to capitalize on those who do, says Konrady, whose clients include companies like Quadrant and Stafford Homes. There are honest lenders and there are also those who rake in high interest rates from developers under pressure.
The situation usually begins when "a developer needs what they believe is short-term money to pay for some aspect of the development approval," says Konrady. Unscrupulous lenders may bait the developer into borrowing "just enough … to hang themselves," which is to say, not enough to handle anything that might happen.
"Then comes something unexpected, and what the borrower thought would take six months takes two years," says Konrady. "They can't keep up with the cost associated with the time-use of that money; finally, they lose their property."
Typical killers are unstable soils, a hidden low-grade wetland, endangered species and, when it comes to infill projects, contamination. "Most commercially developable property in the urban areas has had a previous use," says Konrady, "and it's not uncommon that use left something behind."
The shock of unknown contamination may be less prevalent than ten years ago, but it still often surprises developers with hundreds of thousands of dollars in costs--because they failed to conduct an environmental site assessment before committing to the project. Insufficient knowledge of the regulatory process also has crippled its share of developers.
Bottom line, says Konrady: "Make sure you hire the best engineers, appraisers and the like because the value of the advice and results you get is directly proportional to the quality your team."
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