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

New $100-million fund announced for investment in first mortgages in Ontario

Toronto-based real estate investment firm Downing Street has announced the launch of its $100 million private placement offering, which will be investing in first mortgages in multiple urban locations across Ontario.

The Downing Street Premium Yield Mortgage Fund LP, which will be available in DealSquare, will focus on a diversified mix of commercial, office, industrial, and development land properties, Downing Street said.

“We are actively growing both the debt and equity sides of our business and require a platform which can provide us with access to new capital sources. DealSquare offers that access, while also providing our firm with additional market exposure,” said Marc Canale, partner and COO at Downing Street. “We’re excited to launch this campaign and look forward to welcoming new investors into our business.”

Each mortgage will have a loan-to-value of not more than 75%, and a maturity of not more than two years.

“With DSPYM, Downing Street aims to provide unitholders with consistent monthly distributions backed by first mortgages that are subject to rigorous and diligent underwriting,” according to the announcement.

Downing Street said that it has been providing investment channels into residential, office, commercial, land, and industrial real estate across the GTA and Southwestern Ontario since the company’s founding in 1986.

by Ephraim Vecina 15 Jul 2020

Quebec authorizes resumption of residential construction

Quebec’s government has included residential construction to the list of its priority services, and has allowed projects to continue starting April 20.

In an April 13 news release, the government stated that this permit to continue building residential units applies to homes scheduled for delivery no later than July 31.

“This announcement applies to construction and renovation work, including surveying and building inspection,” according to Jean Boulet, Minister of Labour, Employment and Social Solidarity and Minister responsible for the Mauricie Region. “At the same time, it will reopen the supply chain of the residential sector of the construction industry, which involves numerous small and medium-sized businesses.”

The global coronavirus outbreak has ground many vital industries to a standstill. Construction activity across Canada markedly decelerated over the last few weeks.

“Including residential construction in the list of priority services and activities was called for because of the sector’s tangible social impacts for many households,” Boulet said. “Our goal is to make sure that people can move into their new homes as quickly as possible, which in turn will make rental housing available. I am convinced that residential construction and renovation can resume while keeping industry stakeholders healthy and safe.”

by Ephraim Vecina
15 Apr 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

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Mortgage Award of Excellence Nominated Best Newcomer

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Frenzied commercial development marks next phase for emergent metropolis

Montreal’s residential real estate market has grabbed all the headlines in recent years, but the city’s commercial sector is beginning to burgeon and it, too, will get its due.

Toronto-based Michel Durand, President and CEO of Multi-PretsMortgage Alliance Commercial, says that Toronto and Vancouver cast a pall on Montreal, but as those cities have begun topping out, the Quebecois metropolis is attracting international attention.

“The Montreal market is finally seeing its share of the Asian influence, which we saw in Vancouver about 10 years ago and then it moved to Toronto when things got overcrowded and overpriced. Now we’re seeing a lot of development money moving into Montreal, which we’ve witnessed over the last three years and which, I think, is a trend that’s going to stick for at least the next five years,” said Durand.

Of course, in Montreal, it began with an explosion of interest in residential, and with its success has come the next, if more lucrative, phase of the city’s real estate development.

“Residential is a catalyst for commercial development,” continued Durand. “Once investors and developers get a  taste of how easy it is on the residential side—we’ve seen a lot of condos and towers go up from Asian investors—which is where they start, then they go into commercial development, like office buildings and new retail plazas, by partnering with local players.”

Likely contributing to Asian interest in Montreal is the city finally has direct flights to Mainland China, added Durand.

“Flights would go China-Vancouver and China-Toronto, and that’s where the money stayed,” he said, “but a few years ago flights started going to Montreal directly and we immediately saw the effects on the commercial real estate side, which also includes residential—transactions that are completely investments.”

In tandem with an institutional partner, Kevric Real Estate Corporation recently announced its purchase of a major downtown Montreal office tower located at 600 de la Gauchetière West, for which it has big plans. The purchase is also the latest sign that downtown Montreal’s commercial real estate sector is getting a boost the likes of which it hasn’t seen since a bygone epoch in the city’s history when, as Canada’s largest city, it was the country’s economic engine.

In addition to updating 600 de la Gauchetière W.’s architecture and building a new lobby facing Square Victoria, it will try to attract companies from Montreal’s up-and-coming industries, including technology, knowledge, and media.

“This important acquisition allows Kevric to expand its offering of commercial real estate spaces for organizations which aim to distinguish themselves and will ensure the company’s growth in Montreal for years ahead,” said Richard Hylands, Kevric’s president. “Kevric is proud to continue fueling the evolution of downtown Montreal into a world-class Canadian city.”

Published on MortgageBrokerNews.ca

by Neil Sharma
31 July 2019

Canadian Mortgage Professional Young Gun of the year

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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

Rental Market in Canada – Fall 2018

A Falling Vacancy Rate

Once per year, Canada Mortgage and Housing Corporation provides a comprehensive review of rental markets across Canada. The survey occurs during the first half of October. Results for this year were released on November 28.

For October 2018, the vacancy rate was 2.4%, which was a substantial drop from the 3.0% rate recorded a year earlier. The vacancy rate for 2018 is far below the average of 3.3% for the entire period shown in this chart. The reduction in vacancies resulted in more rapid rent increases, at 3.5% this year. Over the entire period shown, the average increase was 2.6%. This data shows that the situation has become increasingly challenging for Canada’s tenants.

 

 

Vacancy rates fell in 7 of the 10 provinces. Manitoba, BC, and Ontario saw small increases in their vacancy rates. These three provinces also saw the most rapid rent increases. The lowest vacancy rate is now in PEI, followed by BC and Ontario. The highest vacancy rates are in the three provinces where economies have been hurt by the plunge in oil prices (Saskatchewan, Newfoundland and Labrador, and Alberta). These provinces saw the weakest rent increases.

 

Interpretation

Since the data is collected only once per year, it is difficult to construct any models for analysis or forecasting of rental markets. The author’s experimentation over many years, for many different communities across Canada, has resulted in statistical models that have low “reliability”. But, those low-reliability results have been surprisingly consistent, and have led to a conclusion: the two most important drivers of changes for the vacancy rate are job creation during the past year (which allows more people to buy or rent housing) and total completions of housing during the past year.It is tempting to expect that completions of new-rental apartments would be important, but the author’s analysis has found that this is rarely the case.

On reflection, this makes sense:

  • The rental market is part of a complex housing system in which there are very large flows between ownership and renting, and between different forms of housing.
  • Expansion of the total stock of housing offers people more choice: even when people move into new home ownership dwellings, that move sets of a chain of other moves. Much of the time, that chain of moves includes someone moving out of a rental, which creates an opportunity for a new tenant.
  • Moreover, the tenure on a new dwelling is not fixed for all time. In particular, it is well known that many new condominium apartments are occupied as rentals. In addition, some low-rise dwellings (single-detached, semi-detached, and town homes) are ostensibly built for ownership but are made available as rentals.

It is also tempting to expect that changes in resale market activity will affect the rental market. But, once again while the statistical analysis produces unreliable results, over many repetitions it has been found that resale activity has little effect on vacancy rates. This also makes sense on reflection. Most of the time a resale transaction does not add to total demand for housing (the buyer usually moves out of a different dwelling) and it usually does not alter the total supply of housing (unless the new buyer adds or removes a basement apartment).

Employment Trends

Our impressions about the employment situation are largely based on data from Statistics Canada’s Labour Force Survey (“LFS”). This data indicates that during the year up to this September, employment in Canada expanded by 1.2%. This is slower than the rate of population growth (1.3%), and this therefore should be considered a mediocre result. Based on this data, we would expect that housing demand would be weak, and the drop in the vacancy rate this year would be a surprise.

However, the data from the LFS is derived from a sample survey and like all such surveys, it can produce errors. Statistics Canada has a second survey (Survey of Employment, Payrolls and Hours, or “SEPH”), which is based on data from employers, and is therefore likely to produce more-accurate data. This data receives much less attention because it is published almost two months after the LFS (the most recent data is for August). The two datasets usually tell similar stories. At present, however, SEPH shows growth of 1.8% (as of August) versus the 1.2% shown by the LFS (as of September).

Over the entire period shown in this chart, job growth averaged 1.5% per year. Strong job growth in both 2017 and 2018 helps to explain the drops in the vacancy rates that were seen in both years. Housing completions were at above average levels during 2017 and 2018 (the chart shows the figures for 12 month periods ending in September). These elevated volumes of new housing supply provided some relief for rental markets. Without this additional housing supply, the drops in the vacancy rates in 2017 and 2018 would have been even larger than they were.

 

Looking Forward

The mortgage stress tests have resulted in reduced buying of new and existing homes. It takes some time for changes in purchases of new homes to translate in reduced housing starts (and even longer for housing completions to be affected). Increasingly, it appears that housing starts have peaked, and may have started to fall. The next chart illustrates that total housing starts were very strong during 2016 and 2017, but the trend has started to fall during 2018. A more detailed examination would show that housing starts have turned sharply for low-rise dwellings (single-detached, semi-detached, and town homes) but remain very strong for apartments. During 2019, starts for apartments will gradually reflect the reductions in sales that have occurred this year. This is explored in more detailed within the Housing Market Digest reports (for Canada and the regions) that can be found here: https://goo.gl/kJ6mcC

Following from these trends for housing starts, housing completions are expected to fall only slightly during the coming year, meaning that new housing supply will continue to provide some relief for the rental sector. However, housing completions are expected to fall considerably during 2020. As for employment, higher interest rates can be expected to gradually weigh on job creation during 2019 and 2020.

For 2019, a combination of continued high levels of housing completions and a slowdown of job creation should mean that there will be little change in the apartment vacancy rate (perhaps a drop to 2.3% from the 2.4% seen in 2018). The low vacancy rate can be expected to result in continued rapid rent increases, at a rate of at least 3%.

During 2020, the reduction of housing completions that will result from the mortgage stress tests will add to pressures in the rental sector. For 2020, the vacancy rate is expected to drop further (approaching 2.0%) and rent increases will quicken.

Government Policies at Cross Purposes

The federal government has announced plans to make major expenditures in support of affordable housing ($40 billion over 10 years). The federally-mandated mortgage stress tests, by reducing movements out of renting, will add to pressures within rental housing markets, and are operating at cross-purposes to the National Housing Strategy.

 

 

 

Disclaimer of Liability

This report has been compiled using data and sources that are believed to be reliable. Mortgage Professionals Canada Inc.
accepts no responsibility for any data or conclusions contained herein. Completed by Will Dunning, November 28, 2018.
Copyright: Mortgage Professionals Canada 2018