02/2011: When Banks Say No: CCC’s New Business Model Moves Entrepreneurs’ Construction Projects Off the Shelf
When Fox Converting, Inc. of Green Bay launched its 33,000 square-foot expansion, Consolidated Construction Company (CCC) of Appleton, Wis., wasn’t awarded the project—it developed it.
Despite a sound banking relationship, Fox Converting’s regional bank would not approve financing for the manufacturer’s sorely needed warehouse expansion. CCC and its economic development arm Economic Development Associates (EDA) stepped in to help. Working on behalf of Fox Converting, CCC/EDA developed a formal credit-underwriting package and marketed the package to several banks to ultimately fund the project.
“We’re the first construction company in Wisconsin with on-staff funding experts which means that in addition to designing, building, and servicing projects, now we actually get those projects financed,” said CCC Executive Vice President Mark Schwei.
“Almost every construction firm tries to cultivate relationships with local developers and real estate investors. But using the traditional model of general contracting, we found ourselves—and our customers—waiting for others to make things happen. We’ve raised the bar by working as a catalyst to actively drive projects to fruition,” said Schwei. “Our services are even more critical today as banks have tightened lending, causing many companies to shelve projects. We’re pulling those projects off the shelf.”
A division of CCC, EDA expedites development through a variety of services including site selection, real estate acquisition, as well as help to obtain loans, secure funding, improve business plans, pursue federal and state incentive programs, and assemble partnerships for lease or investment options.
CCC created EDA as a sustainable business strategy in 2007, two years before commercial construction starts began to plummet to record lows in 2009. The current state of the economy and its effects on construction project financing are chief reasons CCC’s market-driven solution is working. The $2 million Fox Converting expansion is just one example of how CCC’s new business model is paying off. With the help of CCC/EDA, the manufacturer was able to use its existing equity as down payment, preserve its working capital and obtain a favorable first mortgage and an SBA 504 second mortgage.
“There is no doubt Fox Converting was in a favorable position to expand,” said Steve Diedrich, a 30-year veteran of commercial lending now leading the CCC/EDA economic development team. “Without someone proactively working on their side, however, the path to that expansion was dependent upon the decisions of their bank. We placed their future back into Fox Converting’s own hands.” Midwest Cold Storage of Wisconsin Rapids is another example of how CCC/EDA helps entrepreneurs who have the will to build, find the way. Midwest’s owner Greg McDonald had no financing, no real capital and no business revenues. What he did have was a piece of real estate and the support of the
Wisconsin State Cranberry Growers Association who needed additional cold storage facilities for their crop yields.
“It was a case of ‘if you build it, they will come,’ but I had nothing to go on but the idea,” said McDonald. “CCC and EDA turned that vision into a 75,000 square-foot reality, with 60,000 square feet of freezer space and 15,000 square feet of cooler/dry storage.”
CCC/EDA first performed a market feasibility study then secured the necessary $6.3 million from a ivariety of sources including low-interest loans through a revolving loan fund and the state of Wisconsin’s department of commerce; project debt financing through a local bank with USDA, SBA 7A guarantees; formed an equity LLC with several investor contributions; and secured a long-term, threephase municipality TIF and development assistance grant with the first phase paid for by the municipality. From idea to ribbon cutting spanned only seven months.
“CCC and EDA have access to so many different resources that the average entrepreneur like myself has no idea how to begin to tap into,” said McDonald. “It was literally one-stop shopping.” Two South Dakota entrepreneurs would agree, said Schwei whose company is building a $12 million Cambria Suites hotel in Rapid City.
“Financing the hospitality industry is extremely difficult in today’s banking environment,” Schwei explained. “We managed to secure the necessary financing to turn another piece of land into jobs, plain and simple.”
CCC/EDA helped the investors obtain a construction loan through a regional South Dakota bank and also approached Choice Hotels for additional interim funding on a participant basis. They then worked with a local Community Development Corporation to process an SBA 504 term loan as a second mortgage holder.
The project also required significant cash equity from the investors. With more than half of the equity raised, CCC/EDA negotiated a long-term loan from Choice Hotels based on the investors’ strong financials, thereby giving the project the remaining cash equity it needed.
EDA is a private economic development organization that advocates on behalf of business owners by providing a wide range of expert development assistance. Staff includes public and private finance specialists and former bankers with more than 50 years of finance experience.
Consolidated Construction Company, Inc. consolidates financing assistance, architecture and construction into a single source to provide streamlined building services to commercial, hospitality, manufacturing and food industry clients in Wisconsin and the Midwest. Its simplified delivery model has resulted in national awards for design/build ingenuity and cost reduction.
