Commercial real estate financing

by Ron Margolis

As part of a regular series of industry focused educational and market intelligence activities on behalf of the Commercial Division of WinnipegREALTORS®, I was invited to host a panel discussion on commercial real estate financing last week at the Manitoba Club.

I’ve had the honour of presenting a number of these sessions over the past couple decades, and have often been joined by senior representatives from local and national financial institutions, generously sharing their knowledge and insights with the Winnipeg commercial real estate community.

This time my panel included Derick Fury, district director for Manitoba and Northwest Ontario with RoyNat Capital; Dan LaBossière, assistant vice-president of Business Development with the Business Development Bank of Canada; John Lund, manager of Corporate Lending, Winnipeg Market with Steinbach Credit Union; and Lisa Robichaud, vice-president Specialized Sales Force, Commercial Financial Services for Manitoba, Saskatchewan and Northwest Ontario with the Royal Bank of Canada. 

Each of our panelists presented case studies highlighting recent Winnipeg transactions to illustrate the range and depth of commercial financing options available in our marketplace from local lending sources. Some notable examples — keep in mind these are features of separate unrelated deals — included high leverage (up to 100 per cent) financing for real estate acquisitions and new developments; longer term fixed rates (20 years or more) to hedge interest rate risk; secondary financing for expansion; relaxed due diligence, including waiving requirements for appraisals and other third-party reporting, such as construction, advance monitoring on low leverage deals for experienced borrowers; specialized expertise related to managing environmental risks; term financing for fixturing prior to tenant occupancy, and much more.

Additionally, I took this opportunity to introduce our audience to the ever growing array of debt financing sources. At  present, more than 60 active national and regional commercial lending institutions are keen to deploy mortgage debt into the Winnipeg market. Most are extremely well capitalized prominent names, including life insurance firms, pension funds, trust companies, mortgage investment corps and international banks, in addition to local branch banks and credit unions. In our Q&A, we built on the panel’s case studies to discuss why lenders approach and price opportunities differently, and touched briefly on loan underwriting, sensitivity analyses, benefits of third party valuations and technology disruption. 

Other examples I shared included a small, straightforward, single-tenant office building that attracted 10 competitive lending proposals, all priced more aggressively than the existing lender’s renewal offer, as well as another newly-completed mixed-use project, which demonstrated how creative many lenders can be when trying to win larger transactions by structuring credit facilities with interest only periods, forward rate fixes, loan earn-up options and other features. 

I also showcased the incredibly low CMHC insured interest rates available for residential rental complexes. And, of course, very appealing conventional pricing for most traditional multi-tenant retail, office and industrial investment properties in Winnipeg. And finally, I illustrated how dynamic the commercial financing market can be, highlighting two very similar transactions for a single borrower just six months apart, which attracted completely different pools of competitive lenders.

So what were the key takeaways from last week’s panel discussion? First, there is an ample supply of inexpensive commercial mortgage debt for virtually all market segments in Winnipeg.  Second, when a local lender is asked what financing might be available on a certain property, the expected answer will very likely be, “It depends on the borrower.” The most important factor in determining loan flexibility and terms is a lender’s perception of the borrower’s (and by extension the tenants’) strength, not just financial liquidity, but their expertise, capacity to execute a business plan, track record and industry reputation. Of course, this comes after filtering for general qualifying criteria, which differs materially amongst lending institutions.

While there are some lenders who focus primarily on analysis of the real estate assets, for those borrowers seeking quicker access to funding or higher leverage or better pricing or non-recourse or other less stringent loan terms, they can expect that a successful financing application will focus as much, or more, on sponsorship and cashflow, as on the particulars of the real estate itself.

To investigate financing availability for a current or upcoming property acquisition, new development, refurbishment, upward refinancing or retenanting project, a Winnipeg commercial Realtor will be happy to introduce or connect you with an experienced commercial real estate finance professional, who can help you consider all the relevant aspects to identify and mitigate financing risks and ultimately enhance your real estate investment returns. For more information on last week’s presentation, you may also reach out directly to any of our panel members or the writer.

(Ron Margolis is president of Margolis Capital — Commercial Mortgage Professionals.)