Builder and Banker? A Vermont Developer Gets Creative with Financing

Barack Obama isn’t the only one offering an economic stimulus package these days. Bobby Miller, Vermont’s leading commercial developer, has echoed the president by exhorting: “Let’s get this economy moving again.”

That’s the pitch Miller’s company, REM Development [1], makes to prospective property buyers in what it’s billing as a “10-20-70 Economic Stimulus Package.” Under the terms of the newly marketed deal, REM will supply 20 percent of the total financing package for selected office and warehouse properties in Newport, the Vermont city slammed hardest by the recession. The buyer has to come up with a 10 percent down payment and must arrange 70 percent of the financing through a traditional lending institution.

REM’s 20 percent share will take the form of a loan at a current annual rate of 4.25 percent. The figure is calculated on the basis of the prime commercial interest rate — now 3.25 percent — plus 1 percentage point.

That in itself isn’t such a great deal, says Chris D’Elia, head of the Vermont Bankers Association [2]. He notes that some Vermont banks are making commercial loans available at similar rates to borrowers with solid credit ratings.

What’s different, D’Elia suggests, is Miller’s implicit willingness to “take a piece of the risk.” Miller’s sweetener is meant to appeal to would-be buyers who “may not have enough cash to put on the table or not as stellar a credit rating as you’d like them to have,” D’Elia says. The aim is also to “entice the person who’s sitting on the fence, to get them to act today instead of waiting longer,” he adds.

It’s also the case that Vermont banks aren’t as quick to approve commercial loans as they were pre-credit crisis, notes Brad Worthen, a broker with VT Commercial [3] who’s representing REM in seeking buyers for the Newport properties. By offering 20 percent in seller financing, Miller’s company is in effect increasing to 30 percent the down payment on a deal that a borrower can take to a bank.

And that might make a big difference, Miller suggests. “Banks are a little skeptical on some commercial deals these days,” he says. “They’re looking for more of a down payment than in the past.” Miller acknowledges that his stimulus package is mainly about running risks in hopes of making deals.

It’s a strategy that’s paid off for him in the past, as indicated by the 2 million square feet of Vermont commercial space that REM has under contract. In presenting REM with its 2008 Large Business of the Year Award, the Lake Champlain Regional Chamber of Commerce [4] said Miller had succeeded “by taking a risk on those [properties] that others would pass by.”

Worthen explains the background to Miller’s promotion in this way: “If you have a perfect credit rating and you’re buying as an experienced property owner, and if you can make a substantial down payment, then, yes, you’re able to secure a bank loan. But if you have business experience at other levels and if you haven’t previously invested in commercial properties — which, by the way, are probably a good investment right now — the banks will shut you down. I’ve experienced exactly this with a number of potential clients with an interest in [REM’s] properties.”

Pizzagalli Properties [5], another major commercial real estate firm in Vermont, isn’t offering a similar come-on. Bob Bouchard, development manager for Pizzagalli, calls Miller’s stimulus package “very interesting.” He notes that Pizzagalli leases rather sells properties, but does assist tenants by financing property improvements.

It’s actually “common practice” for a builder to play the role of banker by offering financing deals, D’Elia points out. Worthen at VT Commercial agrees, but says that what distinguishes the REM offering is that it’s being made up front. “In most cases, developers wait for someone to ask” before offering a financing deal, Worthen says.

Miller’s move to get the Newport properties off his hands doesn’t reflect desperation, he says. Advertised sales prices for the four buildings — three of which are fully or partly tenanted — range from $900,000 to $2.8 million.

“We’re not trying to unload a whole bunch of properties,” Miller says. “We’re looking to consolidate back into Burlington, to get rid of some outlying properties.”

Would Miller characterize these economic times as the toughest he’s ever experienced?

“No, it’s the best time,” he declares. The past two years have been “the biggest we’ve had,” he reports, adding, “Having some vacant space is no big deal for us.”

In addition to ranking as Vermont’s top commercial developer, Miller is known as one of the state’s most generous philanthropists. Last week, for example, he gave the Bradford Community Development Corp. an industrial complex valued at $2 million that REM had not been able to turn a profit on. Miller also donated $1 million in funds and services for the recent renovation of the former Gosse Court Armory — now called the Robert Miller Community and Recreation Center — in Burlington’s New North End.