But the director of architecture and development at Longmont-based Cornerstone Homes Inc. said he has heard the same story over and over: "Their response is that federal regulators have placed such onerous requirements on lenders that they have essentially banned any new constructions loans from being made, regardless of the quality of the project."
Cornerstone's project is permit-ready - not an easy task in Boulder - and boasts features such as private elevators in every unit, attached private garages and basements, 3,700-square-foot finished indoor space and 1,300 square feet of additional outdoor space on roof decks, courtyards and balconies. At $2.16 million per unit, Thedos said the homes are competitive in Boulder's luxury market at $584 per square foot versus the typical $700 per square foot and above.
"We've been told by lenders the deal is too big, that it's too small, that it's too visionary - in fact we've been told everything but yes," Thedos said.
He isn't alone. A majority of new developments that were just exiting the design and permit phase in 2009 now sit idle. They're ready to be built, but lack cash in this tight credit environment. Lenders will say those projects also lack demand in this slow economy - and without significant pre-leasing or purchase commitments, they aren't willing to take the risk.
Cash sneaking into the market
Still, some construction cranes are at work locally, meaning cash is sneaking its way into the market somehow.
For Union Place, a new $27 million residential and retail mixed-use project in Fort Collins, the key was tax increment financing.
The 89 for-sale and rental homes and 20,000 square feet of retail space being built southwest of North College Avenue and West Willox Lane, received $2.2 million from the city's Urban Renewal Authority. The incentive from the city - largely for the project's roads and infrastructure to help generate future sales tax revenue - spurred the Fort Collins branch of Nebraska-based Adams Bank & Trust to grant a loan for the project.
"I realistically couldn't have gotten funding without the tax increment financing," said Donna Merten, president and chief executive officer of Boulder-based Merten Inc., who is developing the project. Mike Jensen, a broker and partner with Keller Williams in Fort Collins is helping market the development.
The group attracted the city's investment by setting a goal to gain U.S. Green Building Council Leadership in Energy and Environmental Design or LEED neighborhood certification for Union Place. The 10-acre site will use geothermal and solar energy, water conserving irrigation and stormwater management, and recycle more than 85 percent of construction debris.
The project includes both market-rate and more than 30 affordable-rate town homes and triplexes, four being built by Habitat for Humanity. The units will be priced between $150,000 and $250,000 and available starting in early 2011.
In the commercial sector, you can just about forget going to the banks for financing new development, said Allen Ginsborg, managing director and principal of NewMark Merrill Mountain States Division in Fort Collins. If anything, it's the banks coming to developers like Ginsborg, seeking buyers for the troubled assets on their balance sheets.
Ginsborg said he is nearing an all-cash deal to purchase a distressed shopping center in the Denver metro area from a bank. As long as there are existing properties available at low prices, Ginsborg said there's little reason to invest in any new product, unless it's a build-to-suit with a long-term tenant signed.
Angel investors or bottom-feeders?
There is one other hope beyond the banks. Call them angel investors, real estate venture capitalists, or perhaps bottom-feeders - investors and companies with cash on the sidelines.
California-based HG Capital LLC invests in Western U.S. real estate in good times and bad. But the company gets a lot more attention in times like these, said President Henry Bandet.
"Traditionally a developer in normal financial times would need to come with some cash equity for a project, and the bank puts up 75 to 80 percent financing," he explained. "Today's loan-to-value ratios are more like 50 percent."
HG Capital focuses on providing that cash and expertise for small- to mid-sized commercial and residential projects in the range of $2 million to $8 million. The company looks for operating partners with "skin in the game," Bandet said, with a minimum of 5 percent to 10 percent cash invested with the project.
Demanded return for HG capital's investment can vary, but in its most basic form involves a preferred return of 10 percent a year on the equity and then splitting the profit of the project 50/50, Bandet said.
In some cases, HG Capital doesn't want any bank debt involved. For speculative and land deals, the company prefers providing all the cash needed to the operating partner, since those projects face greater risk of foreclosure - especially with short-term bank loans - and HG Capital could be left on the hook with the bank taking the property.
Back in Boulder, Thedos is now attempting to tap these alternative sources of funding. His other option is to sell the project outright for an asking price of $3.87 million, "which represents a breakeven number for us after three years of research, planning and entitlement," he said.
David Clucas is a freelance writer based in Boulder who can be reached at clucas.work@gmail.com.
