Having worked in the Vancouver commercial mortgage market for over 25 years, Derek Wasson brings with him a profusion of in-depth industry experience in his current position as Trez Capital’s Vice President (Origination) in Vancouver. Derek is a holder of a Bachelor of Arts (Economics) degree from the University of British Columbia.
Briefly, can you tell us about your current market situation?
Right now, the market is for the most part well capitalized; there’s a large number of players here in Vancouver, ranging from the Big Five banks all the way down to doctors and dentists who are looking to place a couple hundred thousand dollars in a commercial mortgage. Trez has approximately $2.2 billion under management, and currently is one of the largest non-bank commercial mortgage lenders nationally.
At the moment, there’s a ton of capital supply for certain product types and very little for others—for instance, lots of money for apartments and other income-producing properties, and very little funds for development land. When it comes to development land, lenders are looking for the highest quality they could find, and since Vancouver real estate is so highly priced right now, everybody is focused on trying to lend to the best, most experienced and well capitalized managers and developers.
In this current climate, what are the common issues you encounter as a commercial mortgage professional?
It’s definitely the heightened level of competition for high-quality asset classes. Also the valuations are so high that you have to be very prudent. You have to do a lot of due diligence and analysis to really hone down on the value of these properties.
Also, the increased AML (anti-money laundering) requirements of transactions mean that the proving of the source of funds has become more important. We spend a lot of time getting to know our clients and the source of their down payments, as mandated by law. We are very careful when it comes to that, and I tell new clients upfront that we as lenders will be conducting very close checks on their funding sources. There are multiple foreign investor groups in Vancouver that come from all parts of the world, and some are very private—and we cannot operate that way. If they can’t or won’t answer our questions, we can’t lend them the money.
What are the most significant financing challenges that your clients are struggling with right now?
While we have a high capacity for construction and income-producing loans right now, our clients’ struggle is two-fold: finding land in the first place—finding land that makes sense for their projects—and then finding the financing to acquire said land.
Another major struggle is the time it takes to get a project permitted in the Lower Mainland. The time frames have become incredibly long as the various cities are so backed up. As I understand it, 3 years are needed now to get a tower project done in Burnaby, and 4 years in Vancouver. It’s simply unreasonable to take that long to complete the entitlement of a project. It is too onerous on the developer, and it is a major factor in the shortage of housing supply and runaway prices in the lower mainland.
Considering these market realities, what would be your advice to your clients?
I would strongly encourage them to prepare to make larger down payments, and plan for a long pre-development time frame.