As CFO of The Coral Company, I have the opportunity to touch many components of our business from day-to-day operational issues to high-level strategic decisions. Perhaps the two job functions that I enjoy the most are compiling our financial projections (I don't know what I would do without Excel!) and our capital structuring (figuring out the right mix of debt and equity for a project and securing those sources of financing). The capital structuring portion of my job has certainly become more challenging in the current capital markets environment. For the most part, only those high quality projects characterized by strong locations, experienced sponsorship and proven tenant demand are able to raise capital. Further, lenders (who generally comprise the majority of any real estate project's capital structure) are requiring more stringent underwriting (higher debt service coverage, wider spreads, immediate principal amortization) that often translate into lower loan amounts and more equity. This means that, all else being equal, equity returns will be lower.
Notwithstanding the above, we believe that real estate investing remains an attractive opportunity for long-term wealth creation and that the short-term credit conditions should not distract from this. Real estate is a cyclical business and we are in the midst of one of those cycles. Opportunities exist in the market for both development and acquisition and good projects can still raise the capital they require. I believe that several of the projects in our development pipeline satisfy the requirements of quality real estate assets (great locations, our sponsorship, tenant demand) and to bring them to fruition we need to remain disciplined to our business practices of hard work, creativity and integrity.
