OK now there is too much real estate financing available in the Calgary Industrial Real Estate market…. Who and how do I choose?
By Sid Smith
It’s actually a great problem to have. Over the past several months I have had opportunity to meet with several lenders that are taking an aggressive approach to lending for owner occupants in the Calgary Industrial Real Estate market. These banks included, TD Canada Trust, Canadian Western Bank, Alberta Treasury Branch, Royal Bank and Roynat.
It appears that the big banks that were once appeared to be on the sidelines during 2009 and 2010 are now back in the game. Both TD and RBC are aggressively pursuing more business in the form of lending to Calgary Industrial’s owner occupants. During the past several years if you were not already a client of one of these lenders you were very unlikely not being considered as a potential client. Now, clearly not the case. Both organizations are pushing staff to actively pursue new clients in all facets of industry. In fact I had opportunity recently to meet with John Mettinen who one of their sales people that has a mandate to work specifically with manufacturing companies and is always exploring for those companies who wish to own their own real estate. John says RBC is taking a holistic approach in this area and are looking at the big picture for manufacturing companies and coming up with financing packages that involve real estate, manufacturing equipment and relevant renovations and improvements as one package and using a “company cash flow” versus the purist approach of only looking at the value and cashflow of the real estate.
TD Bank is no different albeit the lender I met with, Ryan Andries also has responsibility to grow their “investment” real estate portfolio which involves lending purely on the income stream of the property and it’s tenants. I am told that Ryan and his compatriots are not even part of a specific branch and are mandated with expanding the TD commercial real estate loan portfolio.
Roynat, now a subsidiary of the Bank of Nova Scotia, who was historically involved actively in business venture capital and buyouts has an associate in Calgary now specifically sourcing real estate deals to lend on. James Lee is working hard and feels that his biggest competitor the Business Development Bank can’t hold a candle to the deals that Roynat can offer in terms of loan to value and interest rates.
During my discussion with Laciee Shock a manager of commercial banking at Canadian Western Bank the message was clear. “Canadian Western Bank specializes in business banking and is looking to grow its loans in Western Canada by more than $1 billion this year alone.” They are Western Canada based and as such have a special affinity to this part of the country. They are quick to point out that lending decisions are made here in Western Canada and as such they are “here to support (their clients) through all economic cycles” relevant to Western Canada.
Alberta Treasury Branch continues to take an aggressive stance on real estate lending in Alberta albeit seems to still have some tie to existing clients. It is quoting a 3.75% fixed rate or a variable rate at prime plus 0.25% for “multi account real estate customers” and a 4.00% fixed rate or a variable rate at prime plus 0.50% for “single account real estate customers”. Pretty aggressive numbers relative to some of the numbers being quoted during 2010 and parts of 2011. Common among lenders seems to be a debt service coverage ratio of 1.25 or 1.3 to 1. For an owner user this means that the rent from the operating company being paid to the holding company that owns the real estate has to cover between 125 and 130% of the debt servicing.
My advice? Talk to as many lenders as possible to determine who can best service your needs. If you would like more detailed information on the general lending practices of the banks (loan to value ratios, interest rates, amortization periods, debt service coverage ratios) of each of these groups we would be pleased to make a personal introduction.
We hope this has been another thought-provoking topic. I would be pleased to answer any questions you may have. Please feel free to contact D.C. (Sid) Smith by phone at (403) 680-1767 or email at firstname.lastname@example.org
By Sid Smith, Partner/Broker Advent Commercial Real Estate Group in Calgary.