Real estate developers and investors, already vexed by troubled markets and falling asset values, are receiving more bad news from their bankers.

In some cases, bankers are telling such clients they'll need to come up with more money—and it's cold, hard cash—to return loan agreements to a sound footing. They're making those calls after appraised values have fallen, putting loan-to-value ratios, which reflect the percentage of a project's value that a bank will loan against it, out of whack.

Such demands for additional money are loosely called "capital calls," and one retired Spokane professional who received one recently for $100,000 says they can be painful. The professional, who's an investor in real estate developments in his nonworking life and asked not to be identified in this story, says he's gone back to work part time to raise money to help cover the obligation.

Another Spokane real estate investor, Mark Pinch, who also does development work through his own company and long has been involved with NAI Black, says he knows many real estate investors here who have received such calls.

"I don't know anybody that hasn't had one," says Pinch, who declines to talk in specifics about capital calls in any ventures in which he's involved.

The calls are coming at a time when investors already are stretched because of lagging markets, Pinch says.

"You're staying alive, paying your bills, living out of your savings account," he says. "They call up and say, 'We're not renewing your construction and development loan.'"

He adds, "Every company has assets and liabilities. You can't have your assets impaired by the market and then have all of your liabilities come due all of a sudden and not feel it, I don't care who you are."

Such experiences aren't much fun to discuss, and real estate sources can be reluctant to talk about them. "I have nothing to add to the conversation about capital calls," says one developer here.

Brad Williamson, director of the Washington state Department of Financial Institutions' division of banks, also says capital calls are common today.

In a troubled local real estate market, such as the Boise area's, a bank could have accepted as collateral the part of a subdivision that's complete and loaned money against the value of the rest of the project a year ago. If the subdivision appraised for $15 million then, and it was one-third complete, the bank's collateral would have been worth $5 million when the bank made the loan. Yet, because sales are slow, it's possible the borrower since has made little progress to complete the subdivision, Williamson explains.

"If they get a new appraisal, and the subdivision is now worth $10 million, they will call the developer and say, 'If you want to (keep) that (credit) line, you've got to come up with more money,'" perhaps $2 million to $3 million, to make up for the shortfall in the value of the collateral, Williamson says.

"You can see what a problem this can be for a borrower," he says. "It's just as problematic for a bank. They thought they were going to be out of a loan in 12 months. Suddenly, there's no cushion, or the project might be underwater," which means it's worth less than is owed on it.

With home sales slow, many developers are left with little cash flow to complete subdivisions, and banks can be left on the hook for a loan much longer than they anticipated, Williamson says.

"Every 12 to 24 months, when a loan matures, the bank has every right to get a new appraisal and re-establish the parameters of the loan," he says. "That's happening across the country."

"I would agree that it's happening a lot," says Randy Fewel, president and CEO of Inland Northwest Bank, of Spokane. "We've had several very difficult conversations with businessmen."

Yet, the source of a capital call also can be the head of an investment group, contacting the group's members to tell them they must put up money to make the payments on a property or pay the utilities or operating expenses, Fewel says.

Also, he says, "The regulators are coming in, and they're being very difficult. They'll say, 'On this particular project, you've got to get another appraisal and get (the customer) to put some capital in.'"

As long as a customer is current on loan payments, "you can't make the customer pay for those appraisals," Fewel says. He says an appraisal of a commercial property can cost $3,000 to $5,000, which drives up a bank's expenses.

In addition, he says, "Appraisers are being really tough right now" when valuing properties. They, like others, have come under criticism because of the bursting of the real estate bubble, but Fewel says people need to remember that "the values were there three years ago. People were paying those prices. There were comparables."

Marshall Clark, president of Clark Pacific Real Estate Co. here, says the degree of pain an investor or developer endures from capital calls "depends on how leveraged you were when we had these events," such as the stock market crash and the fall of real estate values.

At many commercial properties now, he says, "Rents are getting reduced, property won't appraise for what it did, people are subject to not being renewed when their financing comes up. That's definitely occurring." Also, vacancy rates are up, he says.

"Everyone's got a barking dog—or a snapping turtle—on their rear end," Clark says. "Nobody wants the barking dog."

Still, he says, "There are a lot of people on the sidelines who are in real good shape—and have money. They will scoop up the right assets at the right time. It's not here yet."

The moral to be drawn from what's happening is that, when investing in or developing real estate, minimize risk by holding down debt, Clark says.

When he decides how much borrowed money to sink into a project, he doesn't go by the maximum amount a bank will loan, Clark says.

"I never take the maximum out—period," he says. "I never take debt out unless it's an income-producing property" that will generate revenue he can use to help make the payment, he says. "If it's land, and I don't have the cash, I don't buy it."

Both Clark and Pinch say banks have tightened up markedly on their lending for real estate projects. Pinch says banks also are making capital calls on particular types of projects they don't want to finance now. For example, not long ago a friend of his in another city who had developed a condominium project, but who had sold just 40 of the 60 units in the project, received a call from his banker, who said, "We're not financing condos any more. We want our money," Pinch says.

As bad as capital calls can be for real estate investors and developers, they can be worse for businesses that borrow for other purposes, Pinch says. Real estate loans generally are for a longer term than other loans, and businesses often finance operations with a line of credit that might be renewable every 90 days, he says.

Such credit lines usually have been established through relationships with bankers that have developed over time, and for a business to face such a loss of credit, with little time to establish a new credit line by building a relationship with a different banker, can be difficult, he says.