Developers who venture into abandoned industrial sites with the ambition to turn them into apartments and hotels need to carry more than their big ideas and a pile of lumber into the project.

They also bring along “the stack,” a sometimes-dizzying lineup of financing that can make bankers’ “heads explode,” according to Justin Doyle, the engineer-turned-developer who recently completed the $14 million renovation of the 105-year-old Advance Rumely site at 130 E. Third St. into the Market One office and retail building. Chances are, it wouldn’t have happened without the stack, a financing package that is especially common for projects in urban areas and which includes equity, bank loans, tax credits and other economic development incentives.

“It was clear that Lincoln Savings Bank was the only one interested in learning how the stack worked,” Doyle said. 

He is not the only developer who has found a willing lender in the Cedar Falls-based bank. And Lincoln Savings Bank officials aren’t shy about letting it be known that if your deal fits their underwriting standards, they’re on board as a lender.

In the quarter that ended Sept. 30, Lincoln Savings Bank reported that its loan portfolio had grown by more than $100 million from the same period last year, with 70 percent of the volume in Greater Des Moines.

The bank’s assets nearly doubled during that time, setting the bank on a path to being one of the few community banks in the state to reach the $1 billion asset milestone.

Many observers believe that Lincoln Savings Bank is following a path that has led to the downfall or demise of other local lenders — think Liberty Bank and First Bank, two West Des Moines institutions that entered the commercial lending business with vigor, ran afoul of regulators, watched capital levels decline and eventually were bought for pennies on the dollar by other banks.

For their part, Lincoln Savings Bank officials say they are well aware of the risks, and, despite some perceptions to the contrary, they are not chasing every deal that comes through the door.

Still, loan production goals that the bank planned to reach in 2015 were surpassed in 2014. By 2016, the bank should pass the $1 billion in average assets benchmark.

“The quick and easy way to expand a bank is through commercial lending,” said Scott Jarvis, who was the bank’s regional lending manager until he accepted a job as market president for a $25 billion regional lender based in Wisconsin. “It’s the quickest way to generate income and establish a portfolio.” 

Lincoln Savings Bank entered the Greater Des Moines market in 2010, when it opened a mortgage production operation in Ankeny. At the time, it was known primarily as a residential loan producer and a strong agricultural lender.

The bank later opened a branch in Adel, bought a former Liberty Bank building in Clive in 2012 and is building a new branch in the Prairie Trail development in Ankeny.

It plans branches in downtown Des Moines and West Des Moines.

Lincoln Savings Bank was founded in 1902 in the town of Lincoln in northeast Iowa. Its charter later moved to the nearby town of Reinbeck.

It did not join the rush of out-of-town banks that came to Greater Des Moines during the real estate boom that peaked in 2006. And, it did not join what proved for some local banks to be a toxic expansion to the boom-and-bust states, such as Arizona and Florida. The bank’s Clive branch is in a former Liberty Bank office on University Avenue. Lincoln Savings Bank bought the building, but no other assets.

“We went backwards,” Mike Schick, director of Lincoln Savings Bank’s Greater Des Moines operations, told the Business Record last year. “We caught the low interest rates that were coming and had a market entry at an opportune time.”

For Doyle and other developers, Lincoln Savings is going forward in a big way, and they’re doing it in large part by acting like a small-town bank, with one exception.

“LSB is willing to do the preliminary lending that many smaller banks want to avoid,” Doyle said.

Still, he gets to “connect directly” with the person approving his loans.

“There is no magic guy lurking behind the scenes,” Doyle said.

Those loans are adding up. Doyle said he has tapped into the bank for about $30 million in loans on local projects, and when he factors projects across the state, the number rises to $40 million.

“LSB was willing to chase us to all corners of Iowa and to partner with local institutions as needed,” he said.

Just as important as the amount of loans the bank makes is the amount of deposits it generates as a result of its lending activities.

“We need deposits in order to make loans,” Jarvis said.

Doyle’s firm, Modus Engineering Ltd., was founded in Waterloo and still has offices there. On Jan. 1, it transferred all of its corporate banking accounts to Lincoln Savings.

There is little question that some projects would still be a concept if Lincoln Savings hadn’t stepped in.

“We always struggled to find a bank that understood our work,” said Abbey Gilroy, who was executive director of the Neighborhood Development Corp. before taking a job in October with Beal | Derkenne Construction LLC.

Neighborhood Development is a nonprofit that attempts to trigger private development by acquiring properties and either improving them or finding private developers to take over the projects. It has carried out projects on Sixth Avenue in Highland Park, and it has built new commercial and residential buildings south of the Des Moines and Raccoon rivers.

“We were first ones in the market; there are no comparables, and there’s no guarantee that the community will grow around our project,” Gilroy said.

Lincoln Savings did not require the level of equity in the projects that other lenders might demand, she said.

“NDC was working with other local banks, but their inability to be flexible to our unique needs always demanded a large amount of our limited capital,” she said.

At Lincoln Savings, the stack, which generally consists of city, state and federal development incentives, is as good as cash.

Although many banks require a straight debt and equity arrangement to provide a loan, Lincoln Savings will consider those incentives — which can be investment tax credits and sales tax rebates, among other forms of public financing — as part of the developer’s equity.

Kyle Yencer, senior vice president for commercial lending at Lincoln Savings, said it is a challenge to understand all of the incentives. He spent a year working with Doyle to gain un understanding of financing for the Market One project. 

“Cash is king in financing,” he said. “A lot of banks don’t look at the incentives as cash, but it is cash if it buys down our risk.”

Just as important, is the underwriting that goes into making the loans.

Lincoln Savings also stood on the sidelines during the boom times of development that led up to the financial crisis  between 2003 and 2005.

“I saw a lot of banks come in and fail miserably,” Yencer said. “That’s because they didn’t adjust their practices to fit the market. We give people the ability to give feedback on what works in this market.”

Yencer said that many banks were hiring salespeople rather than experienced lenders to generate loans during those heady times. Many of the loans made up 100 percent of project costs. In some cases, banks were lending to first-time developers. In essence, banks became partners rather than lenders.

“No bank should be so deep in a project that it essentially becomes a partner,” he said. “Borrowers’ perceptions and ours are two different things.”

As a rule of thumb, the bank will lend at 75 to 80 percent of appraised value on a project. Interest rates are competitive because there is intense competition to make loans.

Lincoln Savings isn’t going to lure clients in the door with low rates and then move customers to more expensive products, bank officials said. Although the lender will make cold calls for find clients, those calls generally are based on the recommendation of other trusted customers.

For example, developer Jake Christensen, who counts Lincoln Savings among many lenders he has used on projects in Greater Des Moines, recommended that the bank contact Doyle about his Market One project.

“One of the things they do really well is getting to know people who are sponsoring the projects, and they get to know the project,” Christensen said. In the end, the bank lines up with projects it understands and that is no different “from any other business deal.”

Although the bank is willing to stray from the straight debt and equity path, it is not abandoning basic standards of responsible lending.

“At the end of the day, we have to be confident that our borrowers are going to be able to do what they say they will do,” Yencer said.

How the stack adds up

Here are the multiple layers of financing that went into Justin Doyle’s Market One project.

First mortgage – $7,272,195
Developer equity – $914,384
Federal historic tax credit equity – $1,623,771
State historic tax credit equity – $2,097,371
Project generated tax increment – $1,489,999
Renewable energy tax credit equity – $224,962
Brownfield tax credit equity – $414,443
Geothermal tax credit equity – $30,278
Utility rebates – $100,000
Total – $14,167,403

Source: City of Des Moines

Projects financed through Lincoln Savings

  • Holiday Inn Express, Sherman Associates Inc.
  • East Tower Apartments, Troy Strawhecker
  • Keo Way, Jake Christensen and Todd Mendenhall
  • Madison Flats, Neighborhood Development Corp.
  • Market One, Justin Doyle
  • 505 E. Grand, Jake Christensen
  • Nollen Row House, Jake Christensen
  • Dilley Building, 215 E. Third St., Jake Christensen, 
     Beal | Derkenne Construction LLC
  • Malo restaurant at Des Moines Social Club, 
     Paul Rottenberg and George Formaro
  • Wilkins Building (former Younkers), Alexander Co.

Source: Lincoln Savings Bank