My banker won't back my building

Washington Monthly, Jan, 1989 by Jim DeParle

Jim DeParle is a Jacksonville, Florida businessman.

"We. . .are pleased to welcome you as a PREMIER ACCOUNT customer. Through this relationship, we hope to provide you with financial services tailored to your needs."

A premier account. Financial service tailored to my needs. I felt I had arrived. And why not? After all, I had banked at one of Florida's largest banks for 15 years without so much as bouncing a check. Now the letter was promising me a $15,000 line of credit and a Gold Visa Card that would allow me to charge $5,000 more. I was even being assigned my own Relationship Banker. But our relationship was soon to sour.

When my panner and I asked for a mortgage on our proposed office building, we thought we would have no trouble. Our concept seemed hot. We would provide small business people with all the office services they needed at a price they could afford, starting at $199 a month. They'd get a receptionist up front to greet the clients, unlimited use of a conference room, and a mail clerk to prepare and receive packages from UPS and Federal Express. On a fee-for-service basis, they'd also get use of the office copying and Fax machines, and a secretary to type letters and answer phones. We'd throw in a microwave and a refrigerator-everything right down to and including the kitchen sink and an endless pot of coffee.

The idea wasn't ours alone. Entrepreneur magazine had touted such "business development centers" as the ideal home for a new enterprise-just the right place for an insurance agent or sales rep to park his filing cabinets. Business theorists at many universities have plugged the idea too. Meanwhile, nearby office buildings that offered similar services were full, while starting their rents at $320, much higher than ours. We knew we had the competition beat. My Relationship Banker referred us downtown to the commercial loan department.

Like most small businessmen asking a bank for a loan, we approached with some trepidation. We showed up 20 minutes early for the meeting; the banker kept us waiting for 20 minutes past our meeting time, which further unnerved us. The entire place was deathly still. I found myself whispering to my partner. When the receptionist finally ushered us into a spacious office, a thirtyish-looking man greeted us as if we were there to join the Jaycees. He sure seemed friendly

Having spent two days in a seminar on "how to properly package your loan request," we were ready. I explained the concept and threw in graphs, projections, and surveys, even including a copy of the Entrepreneur article. Our friendly banker's first question was "How much rent are you going to charge per square foot?" I explained that square footage alone didn't tell the story, since our rentals stressed the amenities.

"Square footage," he said.

"Conference room," I replied.

"Square footage," he said.

"Fax machine and receptionist," I said.

He persisted. "I need to know"' he said.

Gazing about his plush corporate nest, it occurred to me that this was not a man who had ever found himself in want of a conference room or receptionist. No wonder he wasn't getting the point.

"Okay," I said, "$16.50 a square foot."

"I don't think that you can get over $12 in that area," he said, comparing us to buildings that offered no services at all. He told us to get a certified appraisal supporting our projections. If it showed our loan request to be less than 75 percent of the building's estimated value, "we can probably do the deal."

The nest egg

This wasn't the relationship we'd hoped for, but still we had a chance. After all, our credit files were clear. Our combined financial statements showed net assets of more than $400,000. My partner had recently retired after 32 years of successfully meeting the payroll at his Venetian blind shop. My little insurance agency wouldn't turn Clement Stone green with envy, but it had shown steady growth for eight years. Plus, by moving my office to the new building, I would become the first tenant and an on-site manager We set off to get the documents our banker wanted.

One month later and $900 poorer, we found that the certified appraisal confirmed our projections. By seaing our rents lower than other offices with our services, we could achieve a 90 percent occupancy rate in the first year At that point, we'd earning $34,086 after expenses to cover a mortgage of $26,520. Plus, our loan-toequity ratio would be well within the bank's guidelines. The appraiser said the building would be worth $375,000. Our mortgage would only be $225,000. This meant we were asking for a mortgage of only 60 percent of the project's final value--far below the bank's 75 percent limit. We forwarded the good news to our banker, with all the accompanying proof.

Then we waited. And waited. Our banker always seemed to be in a meeting when we called (making good use of that conference room, no doubt). He was always going to be getting right back to us, Meanwhile, we moved ahead on other fronts, wrangling with government agencies for all the permits and approvals we needed, meeting with our contractor to iron out our plans. In the middle of our excited preparation, reality hit. We were not going to get our loan. Three months of conforming to the rules had just gone down the drain. When we finally pinned down our friendly banker, he said, "There are too many office buildings going up in town."