Spec Loan Strategies Across Multiple Lenders

[Bryan Hancock]

I was hoping that some of our more astute members may share their strategy for maximizing their spec loans and how they segment them between lenders.  I see many ways of increasing our loan bandwidth and project total in general, but none of them appear to be wise from a risk management perspective.  In general I see that we can either:

1.  Spread a small number of loans across many small regional banks where we deal with a banker with authority below some threshold.  This is generally in the $1M range or so

or

2.  Down-select lenders and try to grow a "relationship" with them such that they'll provide a guidance line of credit.  Loan limits can increase by a factor of 3-5 in many of these cases, but this comes with a major tradeoff of 3-5 percent "compensating balances" (read more collateral via covenants or less money loaned in effect)

Item 2 is desirable from the perspective of reducing brain damage and consolidating relationships.  Item 1 is more desirable from reducing cutoff risk from the lenders, but it is a lot of work to maintain lending relationships across many lenders.  Item 1 also allows us to avoid compensating balances with the lender that loans us the money and thus is better from a risk management standpoint from our perspective.  

Any thoughts?  

Another approach we're exploring is tending toward item 2 above and either selling off part of future deal flow (assignments) or strictly acting as the financier for equity and taking a promote with other operators instead.  This reduces contingent liabilities, but it also reduces income presumably because we'll make less just providing value for raising the equity.  

Private loans or hard money are always options as well, but the projects make far less sense at 10/2 or 9/3 and this is really the best I have found for hard money.  Preferred equity could be raised for the entire project as well, but this is probably more expensive than hard money in many cases.