Commercial bankers offer a wealth of information, insights, and strategic financial recommendations to commercial real estate developers. Prioritizing the development of these relationships locally, CRE professionals can keep abreast of trending industry data, increase bid competitiveness, establish long-term goals for growth, and increase their awareness of innovative lending and financing options.
Long-term relationships benefit both CRE professionals and local bankers in many ways. For example, over time, bankers gain a deeper understanding of the CRE’s business and can leverage their knowledge of the market and available financing programs to make recommendations during the good — and challenging — times. Because bankers learn from their clients’ experiences, they become more adept at knowing which market opportunities will help the CRE professionals’ businesses grow.
How established CRE companies successfully use bank financing
Understanding the most effective way to fund your business is critical, and successful companies deeply understand their financial requirements and business options. This knowledge helps them avoid becoming locked into unfavorable repayment terms hindering their ability to scale. By sharing their challenges and goals with a trusted banker, business owners position themselves to find stronger solutions for the short and long term.
After all, CRE professionals understand their business, mission, philosophy, and goals — but they may not understand the best approach to financing those initiatives, projects or goals. Enter the banking partnership. A robust financial partnership enables CRE professionals to look to their banker for advice on structuring loans or other ways to fund their projects.
Benefits of long-term relationships between bankers and CRE professionals
Working with a banker over the long term means the banker truly understands the CRE business and eliminates the need to repeat the story and history over and over. Only updates are needed as things change. And that’s one less worry for business owners who can focus their energies on growing their companies and positioning them for success over the long term.
Leveraging data to drive growth
Something people understand whether they’re in CRE or the finance industry is how to use data for making informed decisions, reaching benchmarks, and gaining a competitive edge. Bankers understand which data to mine according to how the market is behaving.
For example, rent prices from six months ago may differ vastly from rent right now. Data’s accessibility means it’s become a critical part of due diligence at the beginning of any acquisition, development, or investment opportunity. Besides public data, bankers and investors can access private data sources to gather information about rents, sales comparisons, tenants, and vacancies. And predictive analytics (PA) is incredibly useful for helping CRE professionals and their finance partners predict market conditions such as property values, rent, and vacancy rates.
It’s impossible to understate the value of predictive analytics, defined by IBM as what “brings together advanced analytics capabilities spanning ad-hoc statistical analysis, predictive modeling, data mining, text analytics, optimization, real-time scoring, and machine learning (ML). These tools help organizations discover patterns in data and go beyond knowing what has happened to anticipating what is likely to happen next.”
When CRE professionals harness PA’s cutting-edge capabilities, they gain insights allowing the prediction of trends and prevention of future problems — before responding after the trends or problems have manifested. ML algorithms enable investors and other industry leaders to proactively identify other previously overlooked correlations and make even more accurate predictions.
CRE professionals including investors can work with their bankers to develop customized solutions informed by market indicators and supported by predictive analytics. Here’s one example. One company designed software that collects, organizes and analyzes data on over 400,000 multifamily properties in the U.S.
This highly specific data includes statistical points ranging from crime stats, restaurant and store locations, and schools to demographics and education levels in each specific market. Investors and bankers can immediately determine a property’s predicted value — a process that would take considerably more time (like weeks), resources, and a lot of legwork (and probably some guesswork) to determine without the help of predictive analytics.
This data helps CRE advisors and bankers determine property values based on evaluating where the market might be in 5, 10 or even 15 years. Then the CRE professionals can use this data to negotiate rental rates and tenant lease renewals to minimize their own real estate costs while simultaneously maximizing space efficiency. Lenders can use this same survey data to predict and evaluate interest levels for properties and make recommendations to their CRE clients.
Improving competitiveness through banking relationships
CRE investors should view commercial bankers as strategic partners offering deep insight into exit strategies, loan options, and leverage tolerance. These strong relationships empower bidders to take a competitive approach because they’ve already lined up financing and have a certainty of execution. By understanding the business and growth plan, the banker can more effectively align the capital plan.
And don’t discount bankers for bringing new ideas to the table for their CRE clients. It’s a banker’s job to stay informed about subscriptions and services available for their clients — and when new solutions come to market, bankers can introduce the investors to these tools.
Looking ahead to long-term growth strategies
Many CRE investors play the long game. They don’t have to go it alone. As their relationship with their banker extends over time, a familiarity between the partners develops, as does confidence in the execution. The investors feel more confident they’ll get the deal, with their banker’s help, and that assurance helps them plan projects and take a more proactive approach.
Long-term relationships also mean the bank knows the investor’s creditworthiness, removing a step from the financing process and enabling the client to move more quickly into the transaction — a speed that also improves competitiveness over the long term. Another benefit? A banker is the advisor throughout the partnership’s lifecycle — from an investor buying a specific property to placing long-term or short-term debt on a property or refinancing an existing loan early.
Want to maximize value? Ask your banker these questions.
At the beginning of a relationship, CRE clients should ask:
- How long their banker has worked in the business.
- The level of their banker’s experience with various financing options.
- Their track record of closing deals.
- Their experience, capacity, and knowledge to form a growth-oriented, meaningful relationship.
What sets many larger banks apart from regional competitors includes greater investor access to customized solutions and a diversity of real estate loan products. A big, deep tool chest offers more flexibility in tailoring solutions to suit a CRE client’s specific requirements. Because investors must stand out in their deals, customized financing — made possible by a wider portfolio of financing options — can help them win their bid.
Are you a commercial real estate investor or looking for a specific property to meet your company’s needs or seeking to form a relationship with a market-savvy, trusted banker? We invite you to talk to the professionals at CREA United: an organization of CRE professionals from 92 firms representing all disciplines within the CRE industry, from brokers to subcontractors, financial services to security systems, interior designers to architects, movers to IT, and more.
