Despite rising concern around household debt, the fundamentals that underpin Canada’s economy continue to look strong. After stumbling in January, the domestic economy has bounced back, and recent data suggests Canada will see growth of above 2% in the coming months. The country remains an attractive investment location, and although there is uncertainty in some areas of the residential real estate market, on the commercial side, investors still view Canada as a safe bet. As a result, the bridge lending space continues to see impressive expansion.
“We are seeing a strong demand for bridge financing, particularly in the middle market, the $10 million to $30 million range,” says Greg Vorwaller, president of Trez Capital. “We are seeing a good pipeline of Canadian activity, and our originations are up considerably over 2017. That gives an indication of the strength of the marketplace and the demand for private lender bridge financing.”
There’s a bullishness pervading Canadian business leaders, and it’s making them more confident than their global peers in several areas. A recent KPMG survey revealed that 94% of Canadian CEOs are confident in domestic growth (versus 74% globally), 96% are planning to be a disruptor rather than be disrupted (versus 54% globally), and 66% believe that AI will create more jobs than it eliminates (versus 62% globally). In addition, 94% of business leaders believe the Canadian economy will grow over the next three years, and 96% believe their business will grow with it.
That positive outlook is reflected in the eagerness of developers to push forward with commercial development projects. In particular, the Vancouver and Toronto markets are seeing strong demand on the residential for-sale and for-rent side, which can be attributed to the continued robust migration into those cities, Vorwaller explains.
“To a lesser extent, we are also seeing growth in Ottawa and Montreal, where the underlying economy has shown great strength, and we believe there might be some opportunities that unfold there in the near term,” he says. “We also continue to monitor economic activity levels within the Alberta marketplace. We have not increased our position there, per se, but we continue to monitor the market relative to future opportunities because we know the Calgary and Edmonton markets very well.”
With the assistance of bridge lending products, Vorwaller has seen commercial investors and developers take advantage of opportunities in many areas of the Canadian market, including for-sale and for-rent residential, office redevelopment, industrial development and repositioning, and the neighbourhood retail sector.
“As a result of the various measures brought in to cool the housing market in Ontario and BC,” he says, “we see more downside risk at the upper end of the for-sale market than in the middle price point, where there is a high degree of affordability with continued robust demand.”
The bridge lending market remains competitive, and new entrants continue to enter the space in search of opportunities, particularly at the lower end of the market. Despite the influx of new players, the void left by institutional lenders reluctant to service the commercial space is effectively creating demand for private bridge lenders of all sizes.
“The commercial property marketplace had a record year in 2017, and from what I can see, the activity levels in the first quarter of this year are indicating continued, unabated strength,” Vorwaller says. “We are seeing continued inflows of capital from both domestic investors and offshore investors, which is definitely significant.”
Vorwaller highlights a $675 million bid that was recently made by a Chinese group for the Hudson’s Bay property on George’s Street in Vancouver. There are also properties on the market in Edmonton and Toronto that are attracting both domestic and offshore institutional capital. “That indicates that there is continued interest in the Canadian marketplace,” Vorwaller says, “not only from domestic investors but, more importantly, from international investors.”
The market’s strength suggests that savvy brokers have a good opportunity to capitalize on the current level of investment in Canada’s commercial development space. Brokers looking to take advantage of the continued positive momentum should take note of the emerging and active developers who are the key players. Vorwaller encourages brokers to be highly engaged in the marketplace.
“Brokers who recognize the opportunity but haven’t worked in this space before need to display the acumen, presence and financial analytical skills to really be effective in terms of understanding the numbers and what they mean to their clients,” he says. “Rather than go it alone, brokers should identify organizations and/or people with whom they can affiliate to really make a difference.”