Loan standards stall private sector work

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By James Briggs

Banks have money up for grabs to finance new construction projects — but only the right types of projects.

The construction industry, meanwhile, is drowning as developers try to decipher the magic formula to procure loans.

The money exists, said Kirk Bauer, president and CEO of the Wisconsin Bankers Association, but it’s much more difficult to tap than it was three years ago.

“I think businesses have to go through more scrutiny than perhaps they would have in the past,” he said. “That’s a reaction to the regulatory environment banks face.”

The environment for contractors, for now, exists primarily in the public sector, as government-backed projects continue to keep some construction equipment humming. But private-sector work is lean as businesses across the state — and country — cope with an uncertain economic future.

Foremost Farms USA, for instance, is expanding its Appleton dairy plant at a cost of $47.2 million. But that project has help from a $3.1 million state Department of Agriculture Trade and Consumer Protection grant, as well as industrial revenue bonds. Foremost also refinanced a $135 million loan, in part to pay for the Appleton expansion.

While Foremost had to provide more extensive documentation than it has in the past, it still secured the financing.

“The stability of the company, along with the long-term banking relationships we’ve had, made the difference,” said Michael Doyle, Foremost Farms vice president and chief financial officer.

Such sampler platters of financing are increasingly common, said Corie Brumbaugh, vice president of business development for Neenah-based Miron Construction Co. Inc., which is handling Foremost Farms’ Appleton project.

Miron’s backlog, Brumbaugh said, is longer than it was a year ago, but mostly filled with projects supported in some way by government money, including the recently opened St. Croix Casino Danbury. Miron has gained more than $200 million in projects supported by the American Recovery and Reinvestment Act, Brumbaugh said.

As for those seeking to build without public money, though, only the largest companies have experienced smooth sailing.

“Whether it’s a large health care organization or large manufacturing organizations,” Brumbaugh said, “those organizations are finding ways to finance their projects.”

It’s not as easy for smaller project owners, though.

“In the commercial market — office buildings, retail, that type of development — there is not plenty of financing because of the mandates that were imposed on financial institutions,” Brumbaugh said. “When someone says there’s ‘plenty of financing,’ that is definitely not going to be Miron Construction’s statement.”

When banks lend money, Bauer said, they must have rock-solid proof it’s not for ill-advised projects.

“Banks will ask for documentation to show businesses had cash flowing, solid collateral and a business plan in place to justify it,” he said. “That’s something banks need to inoculate them from the scrutiny a regulator would give them during the exam process.”

The lack of financing flowing toward new construction projects has rattled labor groups, which report as many as 25 percent of their workers are laid off. But it also has reverberated up to architects and engineers.

Madison-based Brownhouse Design LLC has trimmed its staff from 14 workers to four during the past two years, the company’s president, Laurel Brown, said.

“A lot of projects got shelved because the banks are asking for unreasonable terms for clients,” she said. “Our retail customers have been hit bad — a lot of retail is just not expanding.”

Brownhouse’s national clients, Brown said, say developers can’t get money for shopping centers, which means vendors and retailers are shying away from expansions.

“It’s a complex problem,” she said, “and it’s really devastating our industry from an architectural standpoint.”

Banks, likewise, face complicated standards, Bauer said. That prompts intense scrutiny, particularly for developers that want to build in such competitive markets as Madison and Milwaukee.

“I think if somebody wants to build a building for condominiums, or for, say, a strip mall or office park, a bank is going to need to see signed leases,” he said, “particularly in areas where there has been over-construction and now a surplus of supply is a major factor.”

Brown hears banks are willing to lend money, but says it doesn’t matter if the criteria are too strict for her clients to receive any of it.

“We have some development clients saying they’re not anticipating anything for two more years,” she said. “It’s pretty dire to think about. We’re just hanging on.”