CMP spoke with Michel Durand in the space to find out what commercial brokers need to know to navigate a still evolving landscape.

MICHEL DURAND / PRESIDENT AND PRINCIPAL BROKER / MORTGAGE ALLIANCE COMMERCIAL

What do brokers need to do to succeed in the commercial market?


Michel Durand: There are no secrets here, and it’s no different than what it takes to succeed in any market or industry. First, surround yourself with the best professionals to help you accomplish your objective – I would recommend using the most reputable commercial mortgage brokers to facilitate financing your transactions for your client or if you’re helping with purchasing a property, seek out and find the most reputable and active commercial Realtor in that particular market. I would also add that to be successful, you need to stick to what you know how to do well. As a broker, you will get better returns by investing your time in transactions that you understand thoroughly and for which you have a proven track record of success. Find your niche and stick with it. Master what you do, and you will be more successful at it. I see too many people trying to do anything and everything that comes across their plate, hoping to make it work. Hope is not a good business model. Working on transactions that you do not master leads to the borrower and lender getting frustrated and, more often than not, the transaction falling apart.

What are some of the major trends affecting the commercial market today?

MD: The pandemic has had a significant effect on securing commercial mortgages. The lenders reacted, as they usually do to abrupt changes in the economy, by immediately taking a wait-and-see position with respect to any new loan requests they received at the beginning of this situation. Many commercial loan programs were stopped, as this was the first time in history that the lenders had to deal with so many requests for mortgage deferrals. Many lenders had no choice but to take a significant amount of personnel out of their usual underwriting and loan processing positions and have them spend all their time addressing mortgage deferrals. Most lenders have come back to something we can describe as close to normal operations. That being said, because much of the staff is working from home, there are additional delays in processing commercial loans for all the lenders right now. The lenders are not the only ones with additional delays that affect our industry; CMHC has now advised the market that it will be between eight to 12 weeks, once the file is submitted, before they can start working on that transaction. With uncertainty continuing in the market, lenders are being appropriately more conservative in their underwriting, which is affecting loan-to-values being offered to borrowers. The lenders are being rightfully less aggressive on loan-to-values in the current market. That said, the current situation is significantly better than the uncertainty that reigned in the market three months ago.

What’s the best way for a broker to transition from residential to commercial mortgages?

MD: I cannot understate how difficult it is to transition from residential to commercial mortgages as a broker. There are absolutely no synergies that can be shared or that can be used in commercial mortgage brokering that come from residential mortgage brokering. I believe the biggest mistake most residential mortgage brokers make is trying to apply the concepts that have served them well on the residential side to getting a commercial transaction done. To become a successful commercial mortgage broker, you essentially have to throw out everything you’ve learned and every reflex you’ve developed on the residential side. Everything is different: the client approach, how to target your market, how to underwrite the loan, how to submit to a lender, how you get paid for your transaction, how you need to negotiate with the lender, as well as all of the professionals involved in getting the transaction closed. I have rarely seen a residential agent successfully transition to commercial mortgage brokering. That being said, the best way to transition from residential to commercial is to find yourself a mentor who has dedicated his career to commercial mortgage brokering and shadow that person for the next three to five years. Learn how to underwrite a commercial mortgage transaction. Unless you can defend your request to the lender and prove that your request meets all their policies, the lender will see your intervention as being a fly in the ointment. Last but not least, recognize that unless you are ready to dedicate 100% of your time to commercial mortgages, you will not achieve much success or respect from the lenders you need to work with to meet your clients’ needs.


What qualities does a top commercial broker need to have?

MD: Without a shadow of a doubt, if you do not master your craft, you will not be successful at what you do. You need to develop relationships with lenders so the lender sees you as a facilitator who will allow the transaction to be processed with fewer challenges, instead of seeing you as the broker who just keeps asking when the term sheet will be ready. If you are unable to have the lender recognize that you are an expert and an ally, and that you will help expedite the process, you will not get much collaboration from that lender. Additionally, you need to know the lenders’ underwriting policies as well as – if not better than – the underwriter or account manager you’re dealing with. It’s fair to say that most lenders on the commercial side do not like dealing with mortgage brokers. That’s because most brokers submitting a commercial transaction are not properly prepared to ensure the process is easier than if the broker were not involved. Most brokers underestimate the amount of time, work and effort required to successfully conclude a commercial mortgage transaction. The broker needs to be systemized, needs to be organized and needs to follow up on a regular basis on every aspect of the transaction with both the borrower and the lender. Lastly, the commercial broker needs to have enough experience and confidence that will allow him or her to properly address and mitigate any challenges the lender mayhave, as well as to properly correct any misconceptions the borrower may have on how quick or easy or at what rate his loan should be. In sum: Be less of a broker and more of a facilitator

Commercial sector to become more valuable after COVID-19 – CBRE

Acquisition of expansive properties has fallen to the wayside, but commercial real estate is poised to become an even more desirable choice for investment after the coronavirus pandemic, according to CBRE.

This will be particularly apparent in Toronto, CBRE’s recently released “Q1 2020 Canadian Cap Rates & Investment Insights” document reported.

“With internal operational issues consuming 100% of many firms’ time, new investment decisions have become secondary for the time being,” CBRE said. “Term, covenant and existing financing have become increasingly important across asset classes. These factors will continue to enhance or eliminate liquidity for firms moving forward.

“With risk-free interest rates approaching zero, the real estate sector is poised to be an even more attractive investment option once the markets begin to normalize,” CBRE said.

The Canadian office market is ideally placed to exhibit some of the better performances this year.

“After a strong 2019, the office sector had built considerable momentum going into 2020 and was on track to see robust investment activity prior to the market shutdown brought on by COVID-19,” CBRE said. “Given the strength of office fundamentals entering the slowdown, it’s expected that the asset class will be on solid footing when the economy begins to re-open later in 2020.”

Industrial real estate will also prove resilient against the worst economic effects of the current crisis.

“It’s expected that the implementation of social distancing and quarantine measures should increase demand for ecommerce offerings over the remainder of 2020,” CBRE said. “The critical role of industrial assets in omnichannel and global supply chains is only forecast to increase and will ensure the sector remains well supported by strong fundamentals, especially on a relative basis.”

Mortgage Broker News
by Ephraim Vecina
22 Apr 2020

Former niche CRE investment is now big business

Commercial real estate is frequently influenced by changes in the wider business world and one big change is driving interest in a formerly niche asset class.

Data centres are now a cornerstone of business and $100 billion has flowed into the asset class in the last decade according to a new report from Cushman & Wakefield.

These centres include those operated by the technology behemoths who dominate in the cloud platforms, Amazon, Google, and Microsoft. These three companies have impacted data centre sizing tenfold. The 10-megawatt (MW) data center that was impressive 10 years ago now pales in comparison to 30-MW leases now signed with increasing regularity.

“The speed with which the industry is shifting makes the creation of a data center strategy a complex and daunting task,” said Dave Fanning, Executive Managing Director and Leader or Cushman & Wakefield’s Data Center Advisory Group. “Investors must be able to assess the long-term potential of a data centre to hold its value and how easily it can be upgraded. All involved require access to capital and a clear understanding of objectives.”

Vancouver challenging the leaders
Ten cities maintain their statuses among the top 10 for data centres – Northern Virginia, Silicon Valley, Dallas, Chicago, New York/New Jersey, Singapore, Amsterdam, Los Angeles, Seattle and London – but Vancouver is one of those named by the firm as a contender.

“The top markets provide the greatest number of options to the greatest number of perspectives,” said Kevin Imboden, Director of Research for Cushman & Wakefield’s Data Center Advisory Group. “While one size sometimes does fit all, for certain specializations it’s important to review and understand the factors most important to the specific requirement and aim accordingly. Combined with those markets that have been overlooked and underutilized, there is great potential for niche development and secondary markets across the globe.”

 

by Steve Randall on January 30 Jan 2020

The Top 5 Commercial Real Estate Trends of 2019 – CBRE

It’s safe to say that 2019 marked the end of an unprecedented decade for Canadian commercial real estate.

Backed by strong fundamentals, transaction volumes reached a 15-year high of $49.3 billion in 2018, as cap rates compressed to 10-year lows.

While most property types have performed well, industrial has exceeded all expectations, as e-commerce demand continues to grow.

Office construction continues at a record pace, while a rapidly growing population has boosted demand for rental space and multifamily investment returns.

Want to know more? We’ve rounded up the top 5 commercial real estate trends of 2019 to put things in perspective.

1. THE POWER OF LAST-MILE DELIVERY

Canadians can’t get enough of e-commerce, which has seen double-digit growth in recent years. The result? A drastic shift in supply chains and the industrial real estate market.

Companies looking to deliver “last-mile” goods to major metros require distribution facilities in close proximity to downtown cores.

That poses a problem in cities like Toronto and Vancouver, where there is a lack of available industrial space, and what property is available is commanding historically high rents.

Some developers have turned to the concept of multi-storey buildings, first pioneered by cities like Tokyo, to meet demand.

How limited is the supply of industrial space? The national availability rate dropped below 3.0% for the first time on record in the third quarter, with historic market fundamentals in Toronto, Vancouver and Montreal.

And while development activity is ramping up, with an astonishing 28.0 million sq. ft. in the national pipeline, it’s still not enough. Projects under construction account for just 1.5% of existing inventory.

As tenants struggle to find the space they need, investors have recorded strong returns. The sector saw investment volumes total $3.1 billion in the third quarter of 2019 alone, which would be even higher if more owners were selling.

2. APARTMENT RENTAL DEMAND HITS NEW HIGH

Millennials represent 27.0% of the Canadian population and are forming new households at a record rate. But with home ownership costs outpacing income levels, many are opting to rent not own.

That’s good news for multifamily investors. With apartment buildings at or near capacity across the country, rent growth continues to accelerate.

Average rents for purpose-built rental units have grown by 4.4% for the last two years at the national level. That number jumps to 5.0% and 7.1% in Toronto and Vancouver, respectively.

Strong fundamentals – including a growing population, rising home ownership costs and a lack of rental supply – mean this trend is here to stay for 2020 and beyond.

The Top 5 Commercial Real Estate Trends of 2019

3. RECORD-LOW OFFICE VACANCY RATES

Strong job growth has propelled the Canadian economy in recent years, with a whopping 81,000 net new jobs in August alone.

In the 12 months prior, Canada added 471,000 net new jobs, compressing the unemployment rate by 30 basis points to just 5.7%.

These numbers are the backdrop for unprecedented demand for office space and historically tight office markets.

In 2019, Toronto and Vancouver continued their reign as the tightest downtown office markets in North America, with vacancy rates of just 2.3% and 2.4%, respectively.

Tenants are having to be creative with their space as they look to grow and expand, while owners are setting the terms of the leases in a landlord’s market.

As Toronto continues to attract record levels of talent, it seems unlikely that these conditions will change anytime soon.

4. “EXPERIENCES” NOT THINGS

While retail didn’t have the buzziest headlines in 2019, there is reason for optimism – and even excitement – in some areas of the sector.

Lifestyle and entertainment centres have been drawing investor attention, as owners and occupiers continue to reinvent and reimagine traditional spaces with “experiences” in mind.

From food halls to boutique fitness, consumers are drawn to stores that offer experiences they can’t find online.

Many online retailers have opened brick-and-mortar locations in the last year, a sign that shoppers are looking for a mix of in-person and online shopping.

Meanwhile, owners are continuing to combine their retail properties with other asset types from coworking spaces to community services.

5. MARKETS SHAPED BY TECH

Canada is attracting waves of tech talent, as global and domestic companies tap into the country’s tech ecosystem.

The result is record commercial and residential real estate demand and an office construction boom in several markets.

The tech industry has accounted for 17.1% of major-office leasing activity since the start of 2018, and there is 2.8 million sq. ft. of new build pre-leasing by tech firms in Toronto, Vancouver and Montreal.

The boom is putting pressure on already tight Toronto and Vancouver markets and will likely keep office vacancy rates in both cities low in the coming year.

Also benefitting are smaller cities that offer a lower cost of living and operating. Victoria, Hamilton, Oshawa, and Guelph are making major strides in growing their tech sectors and smaller markets are expected to continue to grow in 2020.

 

by CBRE, January 2020

Canadian CRE set to perform well overall in 2020

This year should be a good one for Canada’s commercial real estate sector with overall strong performance.

The 2020 Commercial Real Estate Sentiment Survey from Devencore and Transwestern Commercial Services surveyed brokers and analysts across 43 North American offices to gain insights for the Canadian and US markets in 2020.

South of the border, there is some concern regarding political outcomes, especially the presidential election; but overall expectation is positive driven by the e-commerce industry’s demand for industrial space.

There is also expectation that medical offices will help the office sector in the US to outperform the market.

Meanwhile, offices are expected to perform well in Canada with just over half of respondents predict leasing velocity and tenant prospects will pick up during 2020, with 86% expecting stronger rent growth over the year, especially in industries such as tech and the service sector.

“Similar to the U.S., Canadian commercial real estate markets also are expected to perform well in 2020, with mild concerns stemming from political and trade impacts as well as rising construction costs,” said Jean Laurin, President and CEO of Devencore. “Our economy is healthy and job growth is steady. With the exception of certain regions, major Canadian provinces like Ontario, British Columbia and Quebec all show robust conditions.”

For the industrial sector, Quebec and Ontario residents are renewing amid tight availability, while those in Alberta have more choice and are choosing quality. However, 64% of respondents expect overall industrial asking rents to rise due to limited availability in select markets.

Land costs are also expected to rise as the availability of prime sites continues to decrease. In this environment, the attraction for industrial investment by the capital markets remains high.

 

by Steve Randall  13 Jan 2020

Canadian commercial investment should begin looking further

Would-be investors in Canadian commercial real estate should begin considering markets beyond the usual hotspots of Toronto, Montreal, and Vancouver if recent trends south of the border are any indication.

The tech industry’s sustained hunger for Canadian offices is gradually depleting available urban office space. The examples set by some U.S. cities might provide a good answer to this quandary, according to the Computing Technology Industry Association (CompTIA).

“Something like a Charlotte, or a Kansas City, or an Austin,” CompTIA senior vice-president of research and market intelligence Tim Herbert told Postmedia in an interview.

“These cities [are] more affordable, [and] in some cases you can make an argument that there is a better quality of life.”

In its Cyberprovinces 2019 study, CompTIA noted that smaller cities can become more feasible investment options in the very near future. Last year alone, Canadian tech employment expanded by 61,000 new jobs, amounting to a 3.8% annual increase.

Overall, the tech workforce grew by as much as 249,000 new employees since 2010.

Herbert added that demand for Canada’s office spaces is “not just limited to technology companies, who are starting to take office space or build new headquarters, but a range of different company types are attracting tech talent.”

Data from Avison Young showed that the Canadian office market has seen the positive absorption of 9 million square feet (MSF) in the year ending June 30, 2019. This has massively outstripped the nearly 6 MSF absorption during the immediately preceding 12-month period.

The sustained popularity of the industry and the resulting demand upon Canada’s commercial real estate is impelled by the strength of its long-term employment prospects. In 2018, tech earnings clocked in an average of $78,070 – fully 51% higher than the average reading of $51,794 in the private sector.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage.

 

 

by Ephraim Vecina | 24 Oct 2019

Why CRE investors should consider niche assets

Investors in commercial real estate should consider more than the mainstream asset classes and go niche.

That’s the takeaway from a new report from global real estate firm Cushman & Wakefield that highlights the benefits of investing in niche assets.

These assets include cold storage, data centers, medical offices, student housing, and senior housing.

The report says that transactions in niche assets have exploded in recent years and are now similar to retail and industrial. And changes in how we live and the aging population is set to drive volumes higher.

Niche assets have also outperformed the overall CRE benchmark in the two most recent recessions, suggesting that this could provide defensive exposure in future downturns.

Investors also gain exposure to secular drivers such as changes in demographics, affordable housing challenges, technology, and consumer behavior.

Complex operations
The report notes that institutional activity in niche assets could have room to expand from its current uneven pattern, which would “support pricing and liquidity in a virtuous cycle.”

However, it’s suggested that investors might be better buying an experienced operator in a niche or partnering with one, as niche asset strategies are “often operationally complex.”

By Steve Randall | last updated on the 22 Oct 2019

CMHC FINANCING

Lesser known available CMHC options for Apartment Building Owners

CMHC stands for the Canada Mortgage and Housing Corporation, which is a crown corporation of the government of Canada. Although apartment owners are usually familiar with the benefits of CMHC loan insurance and CMHC loan terms, there are many other CMHC financing options that are not well known and may be beneficial to apartment owners.
CMHC and Commercial Property
CMHC does not directly insure loans for commercial property such as office building or retail centers. However, CMHC does permit up to 30% of a multi-residential property to be used for commercial uses such as a gift shop, office space, etc. If the area of the commercial space is less than 30% of gross floor area or lesser than 30% of the total lending value, then the revenue generated from that commercial space can be included into the total revenue of the property. However, if the commercial space is greater than 30% of the total property area, then the income cannot be added to the total revenue of the property.
CMHC Top-up
Apartment owners may want to increase their loan amount at a minimal cost. The CMHC permits existing CMHC insured loans to be refinanced up to a 65% loan to property value ratio with a premium of 1.75% that is paid only on the new money.
CMHC Mortgage Financing
CMHC will insure second mortgages until the term renewal of the existing first mortgage, which doesn’t necessarily have to be a CMHC insured loan. Then, at term renewal, the two mortgages are combined into one new CMHC. This is beneficial in a rising interest rate environment because a CMHC insured the second mortgage provides a way to increase the loan amount during an existing loan term rather than waiting for the maturity of the first mortgage.
CMHC also insures loans for capital improvements to a maximum of 85% of property value.
CMHC also permits floating rate term loans for terms of at least 5 years. These situations would be beneficial when rates are decreasing or early repayment is anticipated.
Overall, many CMHC financing options are overlooked and not understood very well by apartment investors, so it is important to learn all of the different options available and see which ones can be beneficial.
By: Daniela Peeva |  June 2019

Why use Mortgage alliance Commercial

Top 5 Reasons to Use Mortgage Alliance Commercial Canada (MACC)

 

  1. MACC is Licensed across Canada with offices in Quebec, Ontario, Alberta, and BC
  2. MACC has maintained privileged relationships with all major lenders across the country to allow our clients to access better terms and conditions for their financing needs
  3. MACC simplifies and manage the entire process of any lending transaction from pre-screening requirements and options; completing loan underwriting and lender negotiations, through to the disbursement requirements, to ensure successful completion and funding.
  4. MACC is an approved CMHC correspondent and experienced in preparing and presenting applications directly to CMHC for underwriting and approval. This provides access to preferred rates and terms, and higher loan to value ratios. This includes multi-unit rentals, mixed-use, purchases and refinances. We pre-screen deals to determine potential loan amount available based on property information provided such as rent roll, and statement of income and expenses.
  5. MACC has over 20 years’ experience in the commercial broker industry and a significant track record in deal success covering all commercial industries. We are well-positioned to guide clients through the most complex transactions and obtain the best options in the market. See our website for just a few of the projects completed.  https://macommercial.ca/projects/

 

 

 

Marion Cook  | November 2018

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