Managing Venture-Killing Risks

Because it has been suggested to me that the development of my venture's risk management plan will be the single most important task going forward, I decided to look into our potential risks a bit. The thing that struck me the most when I started doing a little research about risk in the development industry, however, was how ridiculously much risk firm's took before the recession started in 2008 and, by extension, how little they take now. I talked with a developer who told me that, one of the big problems that is in the process of being corrected (at something of a society-wide level as well) was the ease of obtaining bank financing for questionable and speculative projects. Whereas bank lending before 2009 was about 80% loan to value (meaning 20% of the value of the loan paid upfront as collateral), now it's more like 60-65%, a major deterrant to firms that don't have the cash. In addition, the source noted that banks are now focusing on lending only to those development projects that have the highest potential rate of return. The condition of the small-scale development market is, accordingly, "pretty much at a stand still." Not very encouraging at all. The innovative financial plan my venture seeks to utilize avoids this problem, in my estimation, because it relies on little if any bank financing (because we are assuming venture capital financing for our case) . Using historic tax credits and easements to offset 75% of renovation costs means that we're talking about a ballpark $1 million loan instead of a $4-5 million loan (based upon a rudimentary and incomplete operating budget I'm still working on). Questions have been raised about the potential of these incentives drying up or going away in the current political atmosphere. In reality, however, historic tax credits and easements don't actually cost the government anything and only affect tax revenue. They are always going to be there unless current tax laws are repealed or ammended, so as long as there is a buyer for the easements, our venture's financing plan seems sound. To this point I have mainly focused on coming to terms with the potential financial risks my venture poses. The good thing, I have found, is that the risk is not so much in financing the project through completion but rather in filling commercial and residential space after renovation- i.e. maintaining revenue over the long run. I have a target market, and I think I can offer a competitive renting price, but it remains to be seen what I will do if I can't fill the building after it's renovated. One potential option may be to contract with one of Downtown Pittsburgh's universities to give them either office or apartment space for students- this would at least firm up a customer for a given period.