A quick drive around Greenville County would seem to affirm that development has been relatively unscathed in this era of COVID-19. Construction sites continue groaning on unbated, cranes remain a continual presence in the downtown skyline and new groundbreakings seem to occur weekly.
“But it’s kind of an illusion,” said John Montgomery, president of Greenville-based IBI Builders. “A lot of that is out-of-state developers, and in many cases they have a whole different source of funding.”
Compared to some national developers, Montgomery said he considers himself and IBI Builders to be one of the “smaller guys,” which depend on local banks to be consistent. As long as they keep their creditworthiness and their relationships strong with local banks, they don’t expect things to change much.
But with local bankers now forced to navigate the uncertainty of the COVID-19 era, Montgomery and other developers are seeing the spigot on commercial lending being tightened — or in some cases turned off entirely. That means an increasing number of local developers have been forced to turn to non-local bank institutions or private equity sources.
“We personally have had a few project opportunities that fell through due to the lack of funding partners,” Montgomery said. “I was told by my bankers that they were in a ‘hold pattern’ for an undetermined time frame.”
That’s not to say all banks have put the brakes on lending, but many are leveraging less and turning down far more projects that they would have before 2020.
Dustin Green, who serves as senior vice president and commercial team leader with Park National Bank, said he’s aware some banks have “definitely turned the spigot off during certain times” as a result of the pandemic.
Although Green said Park National Bank has not closed off any particular bucket of lending, he did admit he and his team have been more conservative in recent months.
“We’re just maybe looking at deals a little closer than we usually do to make sure we’re putting the client in the right spot, considering a lot are facing large challenges,” Green said.
For “the smaller guys” like IBI Builders and similarly positioned developers, the lure of private equity, with its streamlined processes and less liability, has grown increasingly appealing — if not downright necessary — despite typically higher rates.
“Some other developers and builders that I have personally talked to have expanded their network of lending partners,” Montgomery said, which he admitted comes with some downsides. “You are essentially bringing in another partner that will often have say-so with the project. Where, with a bank relationship, they tend to stay out of your way.”
Ultimately, both Montgomery and Green see the pause on some commercial lending as a temporary measure, although the most significant casualty could be some long-term relationships.
“I think there are some relationships that will be affected between lender and borrower going forward within our market,” Montgomery said. “A good business leader is not going to stop when someone says no and will not forget those that do. If their vision is strong and they believe in their project, they will most likely pursue other sources.”
For his part, Montgomery is looking on the bright side.
“I am looking at it from a positive standpoint,” he said, “because it is giving us opportunity to expand our networking of lending partners as well as other markets for future projects.”