In today’s world, financing is the most challenging part of real estate development. Bear Industries has solid relationships with several strong midsize lenders that are committed to funding both the construction and permanent portion of our projects.
We have witnessed irresponsible over-leveraging in the financial markets which led to inflated and unrealistic expectations. It is important to note, the Federal Reserve cannot inject capital into companies. They can, however, make loans to companies against collateral. Lehman Brothers and AIG are perfect examples of this:
The Fed allowed Lehman Brothers to fail because Lehman ultimately did not have enough equity in place. Without the collateral to back a Fed bailout loan, Lehman brothers couldn’t get the funding they so desperately needed and collapsed.
Troubled insurance giant AIG, on the other hand, while having conducted business with wreck-less abandon, had quality collateral that the Fed felt comfortable lending against; over $160 billion dollars so far.
The lesson to be taken from this situation is: Collateral – or maximizing equity, by remaining deleveraged is paramount to success. We remain dominant as a result of our strong collateralization and the significance we place on solvency. Our rule of thumb: debt never exceeds 60% of our properties’ current appraised value.