Architect tells Congress of dire credit climate

by WOHe

Washington, D.C. – May 18, 2010 – From the American Institute of Architects – The major issue facing America’s architectural profession continues to be the lack of access to financing even as the rest of the economy signals a recovery, one Baltimore architect testified today before the House Financial Services Committee.

Jim Determan, AIA, an architect with Hord Coplan Macht of Baltimore, Maryland, and a former board member of the American Institute of Architects, told lawmakers how the credit crunch in late 2008 contributed to the demise of his prior firm, CSD Architects. As lenders broadly refused credit to the design and construction industry, many CSD projects came to a halt.

In Determan’s case, he and his partners were left with no choice but to close their 60 year-old firm that had successfully weathered previous recessions. As a result, more than 100 people – many of whom had been with the firm more than 30 years – lost their jobs.

“The pendulum has swung so far in the direction of restricted credit that even worthy, well-secured projects by clients with impeccable credentials and proven track records are being denied access to financing,” Determan testified. “The mentality (of lenders) appears to be: ‘since financing everything didn’t work, let’s finance nothing,’ ” he added.

This thinking, in turn, has led to a vicious circle in which construction client financing evaporates. That leads to financing disappearing for architectural firms. Today, nearly one in four architects are out of work and many have been working without pay for as long as 18 months.

“If you ask architects across the country today why conditions are so bad, you will inevitably hear the same two responses: one, firms are unable to secure credit to keep operations going; and two, clients are unable to secure the financing needed to get construction and renovation projects started,” Determan testified.

Determan expressed support for several specific pieces of legislation that would help solve this dire situation:

  • H.R. 5297, the Small Business Lending Fund Act of 2010, introduced by House Financial Services Chairman Barney Frank (D-MA), would provide access to capital for small community banks to lend to small businesses, including for owner-occupied non-residential real estate;
  • H.R. 5249, the Capital Access for Main Street Act of 2010, introduced by Reps. Ed Perlmutter (D-CO) and Mike Coffman (R-CO). Over the next three years, $1.4 trillion in commercial real estate debt are estimated to become due. This legislation would help lenders and borrowers as they attempt to work out their loans under terms that are mutually acceptable, avoid large sums of commercial foreclosures, and free up credit that can be used more constructively.
  • H.R. 4884, the United States Covered Bond Act of 2010, introduce by Reps. Scott Garrett (R-NJ) and Paul Kanjorski (D-PA). Covered bonds are a type of bond that is far less risky than other kinds of investments that can attract investors back into the real-estate market and worthwhile projects can find the financing they need.
  • H.R. 5302, the State Small Business Credit Initiative Act of 2010, introduced by Representative Gary Peters (D-MI), promotes state-based partnerships with financial institutions to give small businesses and manufacturers with access to credit.

“Architects are job catalysts – they are the first workers to be involved in the construction process when they develop designs,” Determan said, noting that 95 percent of architecture firms employ 50 or fewer people. “Hiring an architect leads to employment in other construction-related fields, from engineers and manufacturers, to steel and electrical contractors.”

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