It's harder — much harder — for businesses and entrepreneurs to find financing in Wichita and across the nation.
A year removed from the national economic collapse, the commercial credit cycle in Wichita has tightened so much after aviation layoffs that good deals aren't getting done.
It's enough to frustrate everyone — bankers, brokers and developers — as commercial development slows to a crawl with no turnaround in sight.
"I'm turning down deals, good deals that I know we should be doing," said Jeff Ronen, president of Kanza Bank's east Wichita office.
"I am of the opinion that lending standards aren't going to loosen over time like they have in the past. We're all going to remember how this thing happened, and it's going to take a whole new wave of young bankers for this credit to loosen."
The bottom line: Sources say there's little or no credit available in Wichita for retail, office and condo development. There's some financing available for multifamily housing since vacancy rates are low, but that's about it.
"In today's market, retail is difficult and office is difficult unless you have an owner-occupied deal," said Old Town developer Dave Burk.
"You can still do both, but only with special circumstances. Basically, where there's a need, there's less risk and developers and banks are looking for less risk."
Tight credit couldn't come at a worse time, brokers say, as Wichita prepares a plan to redevelop its downtown.
"My business has dried up absolutely, completely and totally," said veteran Wichita commercial broker and developer Rod Stewart.
"Banks that I personally do business with are... scared to death some examiner is going to criticize them for any decision they make except 'No.' "
Here's the shift in the Wichita commercial lending landscape: Two years ago, banks were happy to offer 100 percent financing if a deal had good potential and respectable tenants.
Today, that same deal is dead on arrival on a lender's desk, replaced by requirements for at least 20 percent developer equity, a spotless credit record and 100 percent personal guarantees — if and only if the deal in question is 100 percent leased to tenants with spotless credit records.
"It makes it harder for our clients to do multiple deals because people only have so much ready cash," said Marlin Penner, president and managing broker of Wichita's NAI John T. Arnold Associates.
"And secondly, it ends your ability to do a transaction that might be just reasonably good. Not excellent, where the credit of the developer and tenants
are just OK, not super strong."
Good times past
Local and national economic prosperity ratcheted up competition for business among lenders, a Wichita State economist said.
"Competitive pressures are hard when a customer comes in and you tell them you need this down payment," said Stan Longhofer, director of WSU's Center for Real Estate.
"It's tough when the developer tells you, 'I can go down the street and get a better deal without all your requirements.'
"You have to decide as a lender whether you lose the customer or whether you lower your underwriting standards to keep the business and the position."
As those underwriting standards slipped, more risky business was done and more loans failed, more so nationally than in Wichita, a fact that frustrates brokers.
"In Wichita, we were never doing the crazy deals anyway, yet here we are," Stewart said. "We were doing regular honest banking that didn't have phony applications for 100 percent loans.
"No matter. The regulators have swooped in and some 30-year-old kid is telling a 40-year banker what he can and cannot do. The practical effect for me and every broker up and down the street is no business."
Today, underwriting standards have been elevated to 20-year highs in tightness, Ronen said.
"Today, it's more money down, and in addition to that, they're looking much harder at the borrower," Penner said. "They're drilling a level deeper to look at the developer's other loans, other loans that he's personally guaranteed. Any blot at all — a sour deal or even a deal that's not quite A-1 — on a developer's record is a big issue."
Gary Schmitt, executive vice president for real estate lending at Intrust Bank, agrees that the tighter lending standards are regulator-driven. He's not ready to call the changes bad.
"I'll bash the regulators as much as anybody, but what's happening is the regulators are putting more scrutiny on us so we're putting more scrutiny on our borrowers. Rightly so, in my opinion, in the economy we're in," he said.
"If we don't take a hard look at their deals, making sure the i's are dotted and the t's crossed, then we're letting down that customer, our shareholders and our community."
A tighter future
Tight credit is not going away soon, local experts say.
"I think that we're not going to start putting up restaurant and retail centers downtown because Goody Clancy (the downtown revitalization consultant) says this will be a great situation for one," Schmitt said.
"I don't think you're going to see 200 new condos in downtown Wichita until there's a demand for it.... I do think this is a tough time to get it (downtown revitalization) kicked off."
Commercial credit could remain tight in Wichita for a couple of years, Longhofer said.
"We're lagging the national economy and the fundamentals are going to have to improve," he said. "Unemployment will have to stabilize, businesses will have to expand, occupancy rates will have to improve.
"When they do, I think the tight standards will loosen back to a more good, prudent style of underwriting."
"There's a pretty strong and pervasive feeling that... we will lag the recovery and the wave is still coming toward Wichita," Ronen said.
"Fear and uncertainty still rules the day. It'll turn at some point. I just don't know when."