In real estate it’s valuable to know what to do and when. It’s sometimes more valuable to know what not to do and when not to do it.

I attended the APARTMENT FINANCE TODAY Conference at the Arizona Biltmore Resort in Phoenix in April. As I had for the last three years, I found the conference well-organized and very worthwhile. We heard from nationally prominent panelists and speakers; academics, economists, lenders, and investors gave their insights on the state of the apartment business today.

We have all been listening to the dire admonitions of a subprime-credit-crunch/foreclosure/ global-slowdown recession. While investors are trying to make sense of these tumultuous times, lenders are trying to decide how they might be willing to finance that next deal.

In the apartment business, liquidity is a key element. That is, liquidity is realized through property cash flow, sale, and finance. But now the lenders are telling us that they will extend loans only where we leave upward of 25 percent of our investor dollars in the deal. They want to see that we’ve got skin in the game. On the initial loan, that’s fine. But the problem is that many of them now want us to keep our skin in the game, even after we’ve boosted rents and increased our equity in the deal by enough to achieve earn-out on the property.

Lenders are paying scant attention to how much upside we bring to the deal even when full occupancy and net operating income has been realized. This current demand on the part of the lenders can turn what are normally appealing investments into ones that are foolish and ill-conceived. It’s time not to be a sucker.

Lenders are thinking about their exit strategy on any given loan. As borrowers, we also need to see our exit strategy. By this, I don’t only mean building new properties or rehabbing and selling in relatively quick succession. Some of us hold our projects for the long term. There is a limit to how much money we can muster, even when it is coming from our proverbial fathers-in-law or grandmothers.

In general, our invested cash must come back to us during the first two years of the project, or once stabilization has been realized. Without this basic strategy, we investors will experience a bottleneck in our cash flow that will result in limited growth and expansion.

If I find a property that has some valueadded potential and the lender is requiring that I tie my money up long term, then I’m dead in the water on my first deal. The only way I can have an ongoing investment business is if I can refinance and pull at least most of my cash out of it so I can go on to the next deal.

When the lender gives us a loan, they are also buying our cash flow from us and betting on the reliability of our cash flow. If we can keep that cash flow coming, why shouldn’t they allow a cash earn-out back to us that gives them the chance to do yet another deal with us, even as they’re still earning income on the first one? That sounds mutually beneficial to me.

It’s the lenders that have mucked up this financial industry by pursuing unsound policies. While they have already made this mistake, they will be making another if they insist that we borrowers overcompensate them in light of the mess they have created.

If the loan programs that were presented by lenders during the conference are the best they can offer, then now is a time not to do a deal. Let us send them home empty-handed until their powers-that-be rethink their strategy and until they come back with loan programs we can live with. Because in the end, a loan must be a win-win proposition.

Bernard Sparer is the principal owner of multiple apartment buildings in the Greater Los Angeles market. He has been a member of the California Department of Real Estate since 1972 and has acquired and managed a host of commercial real estate properties, some with as many as 350 units, in metropolitan Los Angeles.