Trust: Building a relationship with your lender is the forefront of creating value

Trust. You will find the word on a dollar bill and in the names of many financial service companies. You also experience it almost every day in your decision-making process. We choose which news sources to trust from the increasingly segmented media market, which health care providers we trust to treat us and which restaurants we trust to feed us a safe, healthy meal. Providers of credit also differentiate themselves based on trust. Lenders wishing to establish high levels of trust with their clients refer to themselves as "relationship lenders." Other lending sources build their business model on the benefits of providing the cheapest money. These are two different approaches, and it's up to each borrower to decide which model best serves their own business needs. While the term relationship varies between institutions, its intent is to define a long-term and expansive relationship between the lender and client. The degrees of relationship lending are now more apparent than at any time in the past, which is one of the lessons we can take away from this recession. CMBS lenders are at one end of the spectrum and healthy community lenders are at the other. While CMBS lenders have, in the past, provided lenient structures and pricing, their ability or willingness to renegotiate terms and provide additional financing is minimal. In many cases, lenient structure and pricing have ended up being a one-shot deal. Likewise, major banks that derived substantial portion of their profits from trading activities may also be inherently more transactional. Community banks, on the other hand, are driven by a desire to sustain the relationship, and have improved customer service during the past few years in order to be more competitive. Many commercial real estate investors now see the benefit of what they have been paying for from their relationship banks: staying the course, structuring and restructuring to improve a deal, and providing a consistent source of capital throughout the economic downturn are the essential elements of these relationships. The downturn has provided many lessons to reflect upon during the coming months and years. Increased volatility arising from globalized capital highlights the value of forming and maintaining long-lasting relationships. Borrowers now need to be more concerned with the performance and culture of their lenders, making due diligence a two-way street. It is becoming apparent that financial institutions that followed market trends and changed their operations to elicit quick paybacks for risky ventures have been damaged both financially and culturally. Many of us pursuing a relationship-lending model have remained committed to finding customers who want our consistent behavior over a prolonged period of time, and who are knowledgeable about their business and have a long-term vision. By doing this, we have partnered with customers who operate based on similar values and behaviors as ourselves. These relationships were forged during a period of time when seeking relationships was, quite frankly, difficult at best, due to the prevalence of transactional behavior and its immediate rewards. Consequently, we have been able to support those customers as they have supported us in return. These behaviors have enabled us to have a more stable operating environment. As we are likely to continue to experience increased economic volatility from global capital impacts, relationships will continue to provide a natural hedge. Building a relationship with your lender helps to increase trust, with each party clearly understanding the inner workings of the other, and helps to lessen the stress between the borrower and the bank. Yes, while price and structure are integral components of any business deal, consistency and execution are now in the forefront of creating value. Michael Weinstock is an administrative vice president and group manager for commercial real estate lending at M&T Bank, Tarrytown, N.Y.