Growth-minded lenders tighten terms of new debt as costs rise

Peter Mitham
Western Investor

Multifamily, industrial lending poised to grow in 2023

Virtually all lenders say they want to grow their real estate loan portfolios in 2023, but just a few key sectors are the focus as borrowers eye rising interest rates and development plans stall.

According to a national lender survey undertaken by CBRE Ltd. this fall and released Nov. 28, 93 per cent of lenders expect to grow their loan portfolios in 2023.

“Relative to last year, however, the pressure to put out more money has been dialled back,” Carmen Di Fiore, executive vice-president, debt and structured finance with CBRE, said in an online presentation of the report’s findings this week.

A year ago, 67 per cent of lenders expected to increase their allocations to real estate, while this year just 21 per cent intend to do so. The survey spoke to 29 companies managing more than $200 billion in loans.

Vancouver is the top market for investment in Western Canada, with 82 per cent of lenders voicing strong or moderate interest in lending here. Victoria ranks second at 45 per cent while Winnipeg is in third with 37 per cent of lenders expressing strong or moderate interest.

The focus for lenders is the tech sector, especially data centres and life sciences, two smaller segments of the market in Canada where lenders feel under-allocated. CBRE’s lender survey indicates 56 per cent of lenders want to grow their business in these areas.

But in terms of volume and potential, much of it anchored by the sector’s fundamental stability, are multifamily properties.

With high homeownership costs making rental a more attractive option, and rents general rising in step with household income, lenders feel confident lending on these investments. It ranks as the sector of lowest concern among lenders.

“With the winds of a recession circulating, lenders will lean on the multifamily sector for growth next year,” Di Fiore said, noting that 54 per cent expect to increase exposure to the sector in 2023.

Logistics and warehousing is close behind, maintaining a solid position in terms of perceived risk among lenders. Approximately 36 per cent of lenders anticipate increasing their exposure to the sector in 2023.

Tech, multifamily and industrial lending is not expected to be pared back, according to responses to the CBRE survey, unlike for every other asset type.

Hardest hit by the retrenchment as recessionary influences hit is Class B office space, the top-ranked sector for lender concern.

This is driving retrenchment among lenders, 59 per cent of whom plan to reduce exposure to the office sector. The skittishness is on par with the depths of the pandemic, as questions about the death of the office made the rounds. With the latest office development cycle ending and the persistence of hybrid work arrangements becoming clearer, lenders have become more cautious.

“The path to renewed debt availability for office will progress as follows: firstly, increased office attendance is needed,” Di Fiore said, adding that vacancies will also need to come down.

“Short of developing a fully pre-leased, credit-tenant office deal, the chances are very slim lenders will entertain any new construction requests,” he said.

A significant slide in confidence also hit land deals.

“Last year, only 17% had concerns, this year almost 52 per cent of lenders are raising their eyebrows when dealing with land financing requests,” Di Fiore said.

The old saw, “Buy land, they’re not making any more of it,” has shifted for lenders, Di Fiore said.

“This year, lenders are responding, ‘Don’t buy land, because we’re not lending as much on it,’” he said, with survey results indicating 28% of lenders are looking at reducing exposure.

This is noted in not only greater concern in single-family building sites but also condos, despite a generally more favourable outlook for high-density development sites.

While demand for housing is strong, supported by higher anticipated immigration under new federal targets, construction cost inflation and interest rates are having a significant impact on proformas.

“The condo market could see a slowdown based on the changing arithmetic,” Di Fiore said.

CBRE’s survey indicated 39 per cent of lenders will want to see greater deposits while 28 per cent want to see presale assignments curtailed to ensure the stability of presale contracts.

“A tightening in underwriting is on the way,” he said. “The single biggest change coming is that 67 per cent of lenders will require greater equity in projects going forward.”

But industrial deals appear to be largely immune to the skittishness, thanks to strong demand for logistics and warehouse space and few opportunities for developers, investors or occupiers.

“The parade towards industrial will continue,” he noted. “Lenders have no designs on lightening exposure.”

 

© 2022 Western Investor

RBC to purchase HSBC Bank Canada

Fergal McAlinden
CMP

The mega deal is the largest ever reached between two domestic banks in this country

Royal Bank of Canada (RBC) has struck a deal to buy HSBC’s Canadian unit for $13.5 billion in cash, the largest ever agreement between two domestic banks in Canada.

The transaction is expected to close in late 2023 subject to regulatory and government approvals, with the move set to solidify RBC’s status as the country’s biggest bank. HSBC has around 130 branches and 4,200 full-time employees in Canada with $134 billion in assets, but has been seeking to shed its Canadian unit in recent times following a strategic review.

The move will incur acquisition and integration costs of around $1 billion, according to RBC, with the company also set to purchase HSBC’s preferred shares and subordinated debt for just over $2 billion. It’s expected to generate around $740 million in cost savings before tax for RBC.

In a statement released on Tuesday, RBC chief executive Dave McKay indicated that the acquisition would give the company the opportunity to add a complementary business and client base in a familiar market while also allowing it to further its client value and potential for strong returns.

“This also positions us as the bank of choice for commercial clients with international needs, newcomers to Canada and affluent clients who need global banking and wealth management capabilities,” McKay said. “It will help us better serve global clients looking to invest and grow in Canada.”

HSBC Group CEO Noel Quinn said that the company’s review had assessed its relative position within the Canadian market, and decided that there was a “material value upside” to selling the business.

“The deal makes strategic sense for both parties, and RBC will take the business to the next level,” he said. “We look forward to working closely with RBC’s leadership team to ensure a smooth transition for our clients and colleagues.”

Quinn added that closure of the transaction would free up additional capital to invest in growing the company’s core business and return to its shareholders.

 

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North Van 6,907 square feet of retail sells $400K over assessed value

Western Investor Staff
Western Investor

The modern, prime two-storey package, on 0.16 acres in Edgemont Village, traded at $5.3 million in a deal closing November 30.

Macdonald Commercial, Vancouver, for Western Investor

 

Property type: Retail

Location: 3012 Edgemont Boulevard, North Vancouver, B.C.

Size of property: 6,902 square feet

Size of lot: 7,212 square feet

Lot size in acres: 0.165 acres

Zoning: C-1 (General commercial Zone 1)

BC Assessment value: $4.9 million

List price: $5.7 million

Sale price: $5.3 million

Date of sale: November 30, 2022 (closing)

Brokerage: Macdonald Commercial, Vancouver

Broker: Sam Emam

 

© 2022 Western Investor

What will the impact of the current interest rate hikes be?

Ephraim Vecina
CMP

Former BoC head outlines possibilities

The full impact of the central bank’s rate hikes have yet to manifest, Stephen Poloz says

The Bank of Canada’s interest rate hikes have yet to reveal their full impact on the financial system, and are likely to be “even more powerful” than expected, according to the central bank’s former governor Stephen Poloz.

In a speech at Western University’s Ivey Business School in Ottawa, Poloz said that the hikes might have a less than desirable interaction with mounting debt levels.

“I think that the actions that are being taken to get us there will turn out to be even more powerful than a lot of people think,” he said.

Read more: What happens to Canada’s inflation next?

Poloz is anticipating inflation to ease to around 4% amid growth deceleration in metrics like commodity prices. As of October, Canada’s annual inflation rate stood at 6.9%.

The central bank’s hikes, which began in earnest in March, are widely expected to have a chilling effect on the national economy – particularly since it has become especially sensitive to interest rate movements, Poloz said.

“Does anybody here think the sensitivity of the economy to interest rate movements is less today than it was five or 10 years ago?” he said. “I think it’s more sensitive today than it was before.”

When asked if the BoC’s hikes have become overkill, Poloz responded, “It’s impossible to say.

“It takes a long time to actually slow down and so you stand on the brake really hard. Well, then you’re going to cause an accident too.”

 

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Port Kells 2.29-acre industrial site sells for $15.3 million

Western Investor Staff
Western Investor

Industrial land was listed as the market began to shift downward, agents say, which caused a mid-launch strategy adjustment to a successful sale at $6.7 million per acre in the Port Kells area of Surrey, B.C.

Frontline Real Estate Services, Langley, for Western Investor

 

Property type: Industrial land

Location: 10202 177A Street, Surrey, B.C.

Land size: 2.29 acres

Date of sale: October 6, 2022

Sale price: $15.34 million

Brokerage: Frontline Real Estate Services, Langley, B.C.

Brokers: Todd Bohn, Alex Girling and Braydon Hobbs

 

© 2022 Western Investor

Avison Young highlights GTA commercial market’s Q3 performance

Ephraim Vecina
CMP

New report pinpoints market’s strengths and challenges

Deviations from market trends established earlier this year were observed

Activity in the Greater Toronto Area commercial real estate market slowed during Q3 2022 following a strong first half, according to Avison Young.

In its latest market report, Avison Young cited elevated interest rates and ongoing economic uncertainty as the main drivers of deceleration.

“Many of the transactions that closed during the third quarter were negotiated in earlier months, and the market is expected to undergo a period of adjustment as stakeholders seek a new equilibrium in the current economic landscape,” Avison Young said.

Industrial property continued to be the region’s top commercial asset class in terms of dollar volume, amounting to roughly $1.4 billion during the third quarter.

ICI land clocked in at $1.2 billion in investments during Q3, followed by multi-residential ($699 million), retail ($694 million), and office ($536 million) investment activity.

Read more: Avison Young: Office market dynamics have significantly evolved in the largest cities

“Through three quarters of the year, total investment volume of $18.5 billion already exceeds all previous full-year totals except 2021 ($23.5 billion),” Avison Young said.

“However, the decline in activity during the second half of the year indicates that result is unlikely to be repeated in 2022. Cap rates are still compressed by historical standards, but the GTA average for all asset classes increased 20 basis points (bps) quarter-over-quarter to 4.3% – the highest level since 2017.”

 

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2023 Canadian Mortgage Awards building connections

Fergal McAlinden
CMP

Attending the prestigious gala event opens up a host of possibilities, 2022 winner says

The Canadian Mortgage Awards (CMAs) are set to make their return for 2023, with Toronto’s Westin Harbour Castle to host the prestigious awards gala on April 20.

Nominations are open until January 13 for the much-anticipated annual event, which will see mortgage professionals from across the country come together to raise a glass to the industry’s best and brightest.

After two years being staged virtually due to the COVID-19 pandemic, the CMAs made their triumphant return this year as an in-person event – and one of the winners from 2022 told Canadian Mortgage Professional that the value of a live ceremony couldn’t be emphasized enough.

“In person to me is always the way to go,” said Reaza Ali (pictured top), broker relations manager for Eastern Canada at Fisgard Asset Management and winner of the 2022 CIMBC Award for Lender BDM of the Year (Private Lending).

“Even prior to winning the award for the first time back in 2016 and then each year being the nominee, I found it a great opportunity to connect with people that you may not necessarily always have the opportunity to connect with.”

Opening up opportunities

Winning an award at the CMAs can also represent a significant career boost, Ali added, potentially opening up new doors in the industry and elevating a winner’s status with peers and colleagues.

As a networking event, meanwhile, the CMAs offer the chance to rub shoulders with counterparts and other industry figures, and lets mortgage professionals “have conversations with some other executives that you may not have had the opportunity to within other organizations,” Ali said. “In-person is a definite advantage for that.”

For winners, the moment of hearing their name called out in a venue packed full of industry peers is one that lives long in the memory. For Ali this year, it was a “true surprise,” he said, even despite having already been named an Excellence Awardee in 2016.

“I did not expect that this year,” he said. “We had quite a field of nominees, all well deserving. When they did call my name, I was very surprised and happy with that. Standing in front of everyone, they probably saw it on my face. I had a big smile the whole night.”

Winning a CMA is an affirmation of years of hard work that for Ali reflected the strong effort he had put into not only developing strong relationships with broker partners, but also industry partners for Fisgard.

 

There’s no secret recipe to actually win an award – but Ali pinpointed some of the things he had focused on this year, namely focusing on service levels and setting as high a standard as possible in that area of the business.

“We may never always be the best priced, or may not have all of the product suite that others may have in our niche areas,” he said. “But that relationship-building and top-of-mind service was critical. I found as the entrants into this industry and into our space of the industry escalated, the competition became that much greater.

“So to me, the service was critical to be able to maintain, and actually exceed, all the goals that we set for ourselves.”

How to get involved

Nominating for the leading independent awards program in the industry is straightforward and free. Just click here to select the category you wish to submit an entry for, and follow the directions to enter your details and those of your nominee with a brief reason of why the nominee deserves to be recognized in that category.

Award categories are divided into brokerage awards, lender awards, industry awards, and broker awards, with the latter series including the prestigious Broker of the Year (Regional) and overall Broker of the Year gongs.

Industry awards include the Service Provider of the Year, Woman of Distinction, Excellence in Philanthropy & Community Service, Mortgage Industry Employer of Choice, and Lifetime Achievement in the Mortgage Industry categories.

Excellence Awardees are set to be announced across CMP’s online channels in February, and final winners will be revealed at the celebratory awards show and profiled in CMP magazine.

Attending the prestigious gala event opens up a host of possibilities, 2022 winner says

Remember – you have until January 13 to get your nominations in for what promises to be one of the most unforgettable nights in the Canadian mortgage industry calendar in 2023.

 

Copyright © 1996-2022 KM Business Information Canada Ltd.

Canadian Real Estate Prices To Fall 30%, Early Stages of Recession Are Here: Ox Econ

Daniel Wong
other

The outlook for Canadian real estate, and the economy in general, is looking a little less bright. Oxford Economics warned clients this week, that we’re already seeing the early stages of a recession. Higher rates to cool inflation are pushing home prices much lower and prolonging the downturn. High inflation also means a stimulus windfall is unlikely, since it would be counter-productive to cooling measures.
Canadian Real Estate Prices To Fall 30%, Most Gains To Be Wiped Out
Canadian real estate prices are forecast to fall further, but pandemic-era gains won’t be wiped out—though it will be close. The firm sees prices falling 30% from peak-to-trough, after rising more than 54% since March 2020. For those without a calculator handy, that would leave March buyers with roughly 2.3% compound annual growth rate (CAGR). Not exactly the windfall many believed they were blessed with, especially when soaring inflation is considered. 
Residential investment, the share of gross domestic product (GDP) from new real estate, is also seen falling. The segment dropped 10% from Q1 to Q3 this year, as interest rates increased. The firm sees a further 8% decline in the coming year, which isn’t too hard to see with slowing new construction sales. 
Canada’s Recession Will Be Longer But More Shallow Than Normal
Early signs of a recession have already appeared, and this coming recession is expected to be longer than usual. Falling residential investment and already skeptical businesses are seen limiting their investment in this downturn. The firm is forecasting a 2% decline in real GDP from Q4 2022 to Q3 2023. The impact won’t be equal, as you might have guessed.
“This is slightly longer but shallower than the average recession since 1970,” explained Tony Stillo, director of economics at the firm. “Canada’s highly indebted households and still overvalued housing will likely be hardest hit.” 
Major Stimulus Unlikely & Counterproductive 
Expecting this recession to be a stimulus windfall? Don’t count on it, suggests Stillo. The recession won’t be particularly bad, and pre-planned infrastructure projects will help cushion the downturn. However, high inflation has become a limiting factor.  
“To avoid undermining the Bank of Canada’s efforts to tame inflation, major new fiscal stimulus is unlikely unless the recession is severe,” said Stillo.

COPYRIGHT © 2022 BETTER DWELLING

What’s plaguing Canadians?

Fergal McAlinden
CMP

New survey sheds light
Canadians are seeing their finances hit by so-called unconscious spending habits amid the current cost-of-living crisis, report says
As mortgage rates continue to rise and Canada’s cost-of-living crisis shows little sign of slowing, many borrowers have felt the pinch throughout this year – but a new survey has shone a light on some of the worrying spending habits that are still prevailing across the country.
According to a report conducted by FP Canada among online Angus Reid Forum members, many Canadians’ finances are being negatively impacted by unconscious spending, purchases made through habit or convenience which hinder longer-term financial plans and household budgets.
While more than half of Canadians (51%) are currently concerned about their financial situation, many continue with habits that the report indicated were examples of unconscious spending: 21% are charging monthly subscriptions to credit cards more often than less (14%), and over a quarter (28%) are using a credit card to make payments more often, compared with 13% less often.
That’s a worrying trend, according to Raymond James Ltd. financial advisor Johanne Plamondon, who said the survey reinforced the value of using an experienced advisor to get spending habits and financial discipline under control.
“Where it mentioned people are worried about their spending, but they’re not doing anything about it – that rings out to me,” she told Canadian Mortgage Professional. “That’s where having accountability to someone is important, whether it’s your partner or you reach out to an advisor to sit down and go through some of your cashflow – where it is going, and just being aware of it.
“It’s a lot of work to do it [and] people don’t want to spend the time to do it. For some of my clients that have been in a situation where they’re high in debt, we sat down and we’ve gone through and I’ve helped them do the hard work of going through those statements and combing through and itemizing each category.”
What mortgage professionals need to know
Making sure that clients are taking a responsible approach to their finances is critical for a mortgage professional, Plamondon pointed out, in an uncertain climate where both interest rates and other costs are concerned.
“From a mortgage professional standpoint working with people, what I want to do is make sure that a client is prepared and organized and ready to take on a mortgage so that when they do walk in that door, they’re able to be approved a lot more readily,” she said.
A quarter of Canadians are buying more than intended during sales more frequently than six months ago, according to the survey, while 53% are still picking up additional items at in-store or online checkouts at about the same level as they did earlier in the year.
Plamondon said it was essential for Canadians to ensure they’re consistently reviewing their financial statements, receipts and banking transactions to remain cognizant of what they’ve been spending and how much inflation and rate hikes are impacting their finances and savings.
“We don’t want to take away people’s fun, but a lot of things are automated. You might have two or three different streaming devices or club memberships, but the fees have gone up – and unless you’re aware of that, is that something you’re prepared to undertake?
“A lot of it is just spending creep, we’re not aware of it, so for my clients we have the conversation. This is the reality for everyone.”

How can Canadians curb unconscious spending habits?
Using cash more often or having cash envelopes at home to budget for groceries, gas, and other necessities could be ways that Canadians might mitigate their unconscious spending habits, Plamondon suggested, to ensure that they’re not using their bank card and racking up unplanned or unnecessary expenses.
Younger Canadians (aged 18-34) were more likely to say that their use of credit cards to make payments had increased compared with six months ago, with that cohort also charging monthly subscriptions to credit cards, buying more than intended during sales, and using “buy now, pay later” plans more often.
“I find that the older demographic tend to have a little bit more of a handle on it, but some people that are spenders are just falling right into that cycle of increasing expenses just because they’re not paying attention to what’s happening,” Plamondon said.
“The survey indicated that more than half of Canadians are starting to become concerned about finances, just basic food and rent and living is starting to become a little bit more challenging. That is where they need to reach out and get some help, whether it’s a family member or talking to an advisor.”

Copyright © 1996-2022 KM Business Information Canada Ltd.