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

CMP interviews Michel Durand on “How to survive in Today’s Bleak Commercial Lending Space”

Michel Durand, CEO of Mortgage Alliance Commercial, says that he’s been able to use his trusted position amongst prospects, clients, and lenders to broker a record number of deals in the wake of the pandemic. He says that current market conditions are shaped more by anxiety than the real impacts of the pandemic.

Despite bleak headlines and dire, COVID-coloured predictions for the commercial lending industry, one commercial broker says his firm is having a banner year.

They’re coming, though, and Durand is ready for them.

“When the real estate market does well, we do well, when the real estate market is in turmoil, we do better,” Durand says, noting that many commercial mortgage holders still need their mortgages renegotiated. Now, with underwriting rules and market outlooks changing, it’s harder for those borrowers to conduct and complete that renegotiation or secure new loans. That’s why so many are turning to Durand, he says, to broker the deals they need completed.

COVID-19 still a disruptor

While the volume of business has increased for Durand, he says the work is becoming more challenging than ever. Much of that is due to the decision by many commercial lenders at the end of March to completely stop their lending programs for commercial transactions, both because of the pandemic’s undermining of whole swathes of the commercial real estate market and because of the sheer number of deferral requests.

With the pipeline narrowing, Durand says he’s relied on the strength of his relationships with lenders who, he says, hold him in high esteem and will chose him and his clients for the limited number of commercial deals they’re still making. He says that in a market defined by confidence, a reputation that can only be built over decades is golden.

From a wider commercial lending perspective, he says the Canada Emergency Commercial Rent Assistance (CECRA) program has helped buck up some confidence in the market and “cushion” the impact of the pandemic on the commercial lending space. He says, though, that the ticking clock on a program like CECRA points to a longer-term challenge in the commercial lending space: what will happen when things get worse?

While Durand expects the full impacts of the pandemic to be felt in the commercial lending space in the coming months, he also expects that the mortgage industry as a whole will adapt to a worsening situation. He says that the lending industry tends to react quickly to changing circumstances and that brokers must act accordingly. When things fly out of brokers’ hands, and circumstance sets the tone, he says brokers need to stay on top of their clients. In March, he immediately worked with his clients to ensure their filings and documents were all in their best working order, submitted, and on the lenders’ “front burner”. These clients were the top priority for lenders when they opened the tap again.

Proactivity and education have become watchwords in the commercial space, Durand says. Now he’s addressing mortgage renegotiations due in six months or a year to make sure clients are taken care of before the situation worsens. He’s preparing clients for the eventuality of a weakened economy or second wave of COVID-19 and getting them ready for stingy lending driven by more conservative underwriting rules.

Durand says he’s preparing his business to weather any new storms that may be brewing, putting him in a position to act on every opportunity that arises.

“In every situation like this, and I’ve been doing this for 27 years, it’s not the end of the world,” Durand says. “We’re all going to get through it and opportunities are going to arise. If you focus on that, knowing that you’re going to get through it, I’m not saying it’s going to be easy, but you’re going to get through it and there will be opportunities. All of a sudden, it doesn’t hurt so much. All of a sudden, it’s easier to handle.”

by David Kitai 31 Jul 2020,  MORTGAGE BROKER NEWS

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

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

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

CBRE predicts record $50 billion investment for commercial real estate this year

TORONTO – Canada could see a record-breaking $50-billion worth of investment in commercial real estate this year as economic tailwinds and immigration policies support the booming sector, according to a report by CBRE, but it says the strong economy is also creating challenges of affordability and supply.

The commercial real estate services firm said Tuesday that total investment would be about $5 billion higher than 2019 and about a billion dollars higher than the record set in 2018.

Growth comes even amid low vacancies in major markets as tech companies in particular continue to prize downtown locations. Other strong areas include investments in rental apartments as home affordability gets out of reach for many Canadians, and industrial growth driven by e-commerce demand for logistics centres.

“Canada has so many advantages, and so many underlying fundamentals that are positives over the long-term, that we certainly think that growth in the Canadian commercial real estate market is going to continue,” said CBRE Canada vice-chairman Paul Morassutti.

Those trends, along with strong population growth and stable banking and governance, would help steer the sector if a recession hits, said Morassutti.

“The wild card is a recession. My feeling is we’re very well positioned to weather a recession, and I think we’ll continue to flourish after that because of those attributes.”

Heightened interest in the market is also creating challenges, including rising rents and limited office and industrial space, while climate change is creating its own issues.

CBRE says prime office rents jumped 20.9 per cent in Vancouver between 2018 and 2019, 14.2 per cent in Montreal, and 10.1 per cent in Toronto, while national industrial rents rose by 12.3 per cent between the two years for the largest increase on record.

Rents still form a small portion of company budgets and don’t seem to be a major constraint on growth yet, said Morassutti. He noted that in the industrial sector, costs savings in transportation from better locations more than offset costs from higher rents.

Rental rates for apartments are also climbing in major centres as home ownership becomes more expensive, which has helped drive investment in the multifamily. The sector could see about $11.9 billion in investment this year, up from $8.3 billion in 2018, to see the most of any commercial sector, CBRE expects.

The upward trend in residential rental rates is however putting pressure on income inequality, said Morassutti.

“Partially because of that lack of home affordability, you have all these people becoming renters, so on the one hand that’s a good thing. On the other hand, it’s not great for society that our two major cities are becoming unaffordable, it’s not great for the income divide, which is already a large social issue.”

Along with affordability, CBRE says the lack of investment in transit infrastructure, and increasing pressures of climate change on the construction sector and land values are also structural issues of concern for the year ahead.

More immediately, the impacts of the coronavirus outbreak also loom as a big unknown, but could be short-lived if it is contained, said Richard Barkham, global chief economist at CBRE said in a statement.

“If the coronavirus outbreak is relatively contained sometime in March, impacts on the Canadian economy and most commercial real estate sectors will be noticeable in the near term but less substantive over the year.”

He noted that short-term impacts would largely hit the hotel and retail sectors. He said the global property market should be able to weather the effects of the virus as anticipated today, but that a clearer picture of the epidemic should materialize sometime in March.

 

The Canadian Press 

©2020 The Canadian Press

Dueling multifamily proposals offered for Montreal’s Canada Malting site

The fate of the long-defunct Canada Malting facility along the Lachine Canal in the Saint-Henri section of Montreal is the subject of rival proposals for multifamily housing, one from a real estate development firm seeking a traditional condominium complex and the second from an advocacy group proposing a community-based project.

The Canada Malting site was constructed in 1907 and ceased operations in 1989. Over the years, the site’s terracotta silos fell into disrepair and were covered with graffiti – with many cheeky spray-painted messages complaining about the harsh aroma permeating the wreckage. The site is currently owned by Quonta Holdings, an investment management firm, and is estimated to be worth between $5 million and $6 million.

The fate of the property began to gain a new degree of importance in when Renwick Development put forth a proposal in 2013 to construct a 700-unit condominium complex at the site. This generated a large degree of opposition from local residents, who believed a community-focused project would better serve the borough’s needs. The opponents to the condominium project gathered together into an advocacy group called À nous la Malting and sought to shift the conversation away from traditional multifamily housing.

Renwick Development has since scaled back its 700-unit proposal to a smaller project that incorporates social housing units. Noam Schnitzer, founder and developer at Renwick Development, told the McGill Daily that he envisioned creating “a total of 240 units, of which 80 will be social housing units, and the rest will be condominiums.”

However, the social housing units would be segregated in a separate building on the property, with the remaining available square footage devoted to commercial spaces and an artists’ workspace collaborative. Schnitzer added that under his plan, “the provision of the services would not depend upon government funding.”

Earlier this week, À nous la Malting unveiled renderings of its vision for the Canada Malting site. This proposal envisioned a collectively owned development consisting of 200 affordable rental units, plus spaces for public daycare, a community kitchen, a rooftop garden, a bicycle repair shop and a museum. In its presentation, À nous la Malting emphasized its championing of social housing for the neighbourhood and the need to create “a refuge for people being displaced by gentrification.”

“We want to show people that it is possible to develop our city differently,” said Shannon Franssen, a member of À nous la Malting, in a CBC interview. “We don’t need to make profit off people’s need for housing and for essential services.”

À nous la Malting stated that it worked on this proposal for the past few years, with financial backing from Centraide of Greater Montreal and the Sud-Ouest borough. The presentation included detailed architectural plans for transforming the current eyesore of a site into an aesthetic pleasing multifamily development.

Julie Bélanger, director of the office of Le Sud-Ouest borough mayor Benoît Dorais, told the McGill Daily that the Canada Malting site “is very complicated” and is burdened with “a ton of issues” including the need for extensive land decontamination. Bélanger acknowledged being eager to see how the financial aspects of À nous la Malting’s proposal would add up.

But what if neither the condominium option nor the community-focused proposal worked? Belanger admitted the borough needs new housing units – it has the lowest vacancy rate in Montreal – buy she did not envision the City of Montreal stepping in to buy the property and coordinate new housing construction.

“We don’t have the means to buy it, and it wouldn’t be responsible to do so,” she said.

 

by Phil Hall / 06 Mar 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