Ten on the 10th: Interest rate and commercial mortgage brokerage Q&A with Dave Ganong of Canada ICI Capital
Ten on the 10th
Published December 11, 2019
Citified's Ten on the 10th is a monthly question-and-answer segment connecting our readers with the insight and knowledge of Victoria's top real-estate and business professionals.
December's Ten on the 10th features Dave Ganong, President of Canada ICI Capital (Victoria) Corporation, a Victoria-based commercial mortgage brokerage.
Asking the questions is Ross Marshall, Senior Vice President of the Victoria offices of commercial real-estate brokerage CBRE. As a leader in facilitating large-scale commercial real-estate transactions throughout the Capital Region – which include apartment complexes, industrial retail and office properties, and land/development opportunities – Ross and his team are at the forefront of market-leading real-estate transactions on Vancouver Island.
Would you like to be featured as part of a future Ten on the 10th Q&A? We'd love to hear from you.
Tell us about Canada ICI Capital (Victoria) Corporation and what services you provide to the real estate industry?
Canada ICI Capital (Victoria) Corporation is an independent commercial mortgage brokerage company which I founded in 1995 after working in the industry for 15 years with Morguard Trust Company and Mackenzie Financial. We specialize in arranging mortgage financing and providing real estate advisory and consulting services for our clients. As a commercial mortgage broker, our primary business involves underwriting specific projects or properties to structure financing that meets the needs of both the Borrower and the Lender.
Who are your clients and how have you built such strong relationships?
Our borrower clients include developers and private equity investors whose portfolios range from single assets to large, fully diversified portfolios of commercial, industrial and multifamily properties. Our funding sources include Canadian pension funds, life insurance companies, investment counselling firms, credit unions and Canadian chartered banks.
Our relationships with our long standing clients have been built over years…decades in some situations and come from our proven ability to provide consistent, competitive and creative capital solutions which meet or exceed the expectations of both our Borrower and lending clients. We continue to build our client base, which is exciting and rewarding. With some of our lending sources, my relationship dates back to my early years with Morguard Trust Company. You build an exceptional level of trust with these long term relationships which makes doing business so much easier.
What asset classes do you arrange financing for?
For construction lending we are arranging financing for multi-family condominium, townhouse and purpose built rental projects as well as for commercial developments including office, industrial and mixed-use projects. On a selective basis, we also arrange land acquisition funding.
About 50% of our brokerage business involves long term financing for existing properties where clients are acquiring new assets or refinancing existing properties held in their portfolios.
How do you determine the amount of financing any particular project of property can support?
This is a really good question because I am often asked if we can secure financing for 75% of the value of a property. In commercial real estate lending, it isn’t that simple. For construction financing we can arrange financing for up to 80% of the total costs of a project, provided there are solid presale or preleasing commitments in place. Long term financing of income producing properties (apartments, office buildings, shopping centres and industrial) is based on the income the specific property generates or is capable of producing and the interest rate which can be secured. Lenders typically want to see a margin of 1.2 – 1.3 times of stabilized income to annual debt service which, put another way, for every dollar of debt service (principal and interest payments) they want to see $1.20 to $1.30 of stabilized income from tenants in place and paying rent. Depending on how you determine the value of a property and with current interest rates, it is possible to secure 75% financing.
One great service we can provide is structuring both the construction and long term financing for developers who are building projects for their own account.
Our loan limits range from $1.0 Million to $50.0 Million.
Looking at the year in review and the year ahead, where do see interest rates and the supply of capital to our industry heading in 2020?
2019 was another solid year in our business, which reflects the strength in our real estate market and in the capital markets industry in Canada. We were very active in the construction lending business this year for both spec and presold projects. Term lending continues to be very competitive with near-low historic long term interest rates. As an example, we are securing CMHC insured long term financing (10 year term/30 year amortization) at current interest rates of 2.60%. These rates are narcotic!
For 2020 I do not expect to see significant changes to both short and long term interest rates. For our short term construction lending business, most interest rates are based off the Canadian Chartered Bank Prime interest rate which is currently set at 3.95%. The Bank of Canada has sent a pretty clear message they do not want to adjust rates significantly above or below a narrow band width. For long term financing, most of our pricing is based off a spread over an equivalent term Government of Canada long term bond. While the bonds rates continue to fluctuate, again in a fairly narrow band width, these rates have been consistently low over the past 3-4 years compared with previous cycles. Barring a major geo-political event, which is impossible to predict, it seems the world has settled into a low interest rate environment where we are now seeing negative yields/interest rates in many countries.
As for the supply of capital, both debt and equity, to the real estate industry, we will continue to see a “wall of capital” available for lending and investment. Virtually every lender we are working with will see increased allocations for mortgage investment in 2020, and this is at a level above very healthy lending volumes in the current year. And the good news for our Borrower clients, Lenders are going to get more and more competitive which should see lower interest rates and very favourable lending terms.
What challenges and opportunities do you see ahead for the real estate industry and market in Victoria and on Vancouver Island?
The biggest challenge I see to both developers and investors in our industry is continued and broadening government regulation and interference, at the Municipal, Provincial and Federal level. There are exceptions at the Municipal level within the CRD and with certain programs offered by the Province and the Feds which offer funding models to promote the development of affordable rental housing. However, from stress tests, to rent controls, to inclusionary and rental only tenure zoning policies, government intervention is proving to be incredibly counter productive and costs to a stated objective of creating and preserving more affordable housing.
On the positive side, all of our markets, from the multifamily, office, industrial and even the retail sectors, are performing exceptionally well. The availability and cost of capital for real estate investment and development will continue to provide abundant and “cheap” sources of financing.
What opportunities do you see for your clients in refinancing existing assets?
The biggest advantages we see where clients choose to refinance existing assets/properties to fund capital improvements or for reinvestment and acquisitions of additional properties is the low cost of capital achieved through refinancing and the tax implications of debt restructuring compared to dispositions or the sale of a long-held property. Through refinancing, if your cost of capital is between 2.5-3.5%, you should be achieving significant positive leverage on new investments where current cap rates or yields are running for the high 3.0% to low 6.0%.
The lending and brokerage business is highly competitive. Rumor has it you are a competitive person by nature. How do you compete in business and in your personal life?
I would like to know who is spreading these rumors? And yes, I admit to being mildly, well, maybe extremely competitive in my approach to business and in certain parts of my personal life. I compete in business by keeping myself well informed of what is going on our industry and by maintaining long term, trusted relationships with my clients. I compete on every deal and winning a mandate involves coming up with the best combination of structure, pricing and remaining accountable. In my personal life I compete mostly with myself and love getting out of my comfort zone. For the past 4 years I have really ramped up my involvement and competition in half and full ironman triathlons where I can truly get out of any semblance of being comfortable. I think I have found the fountain of youth!
What has kept you interested and engaged in your industry for almost 40 years?
I have been involved in commercial mortgage brokerage, development, real estate brokerage and consulting for almost 40 years and this industry continues to fascinate me. I think you always have to be curious and continue to learn throughout your career. I still learn something from every client I work with and every deal or transaction I am involved with. Mostly, it is the people you meet and work with in our industry that provide inspiration a feeling of accomplishment.
What are the three most important things you have learned in your career?
Easy question to answer!
Firstly, never forget how small this industry is and how long your career can be. I am working with some colleagues and clients who I have known literally since the first day I started work in Vancouver with Morguard Trust Company in 1980. Your reputation will follow you wherever you go.
Secondly, as I mentioned above, you never stop learning. The opportunities in the real estate industry to continue to grow and learn are endless.
Finally, I believe everyone should be engaged and in some way give back to the industry and to the communities where we live and work. Whether it be through volunteering at a charity event, serving on the Board of a non-profit of charity organization, or opening an employment opportunity to new people joining our industry, everyone has something to offer. C
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- Would you like to be featured as part of a future Ten on the 10th Q&A? We'd love to hear from you
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