ALTERNATIVE SOURCES OF CAPITAL: SMALLER BANKS, PRIVATE EQUITY, CREDIT UNIONS AND FOREIGN BANKS Sample transactions
Acquisition financing • Loan Amount: $15,300,000 ($93/sf) • Property Type: 465,000sf Class A office building • Occupancy: Fully occupied, single tenant with one year remaining on lease • Location: Montreal, Qc • Term: 2 years • Amortization: Interest only • Loan Loan-to to-purchase: 92.5% 2
Challenges Solutions / Mitigants • Tight timeline to close (Dec. 31 st ) • Property acquired well below replacement cost ($100/sf) • Pending vacancy • Stabilized value well above purchase • High leverage (>75%) + lease-up/carrying costs • Structured transaction (A/B) • Cash sweep during remaining term of lease • Experienced owner / Strong sponsorship Exit strategy: lease-up of property (24 month timeline) and refinance with long term debt. 3
Bridge/construction financing • Loan Amount: $19,000,000 ($105,000/unit) • Property Type: retirement residence; conversion from long term health care to independent living • Occupancy: < 50% • Location: Montreal, Qc • Term: 2 years • Amortization: Interest only • LTC: 82% • LTV: 70% 4
Solutions / Mitigants Challenges • existing CMHC debt • acquired 50% of existing 1 st mortgage • challenged history with previous • provided 2 nd ranking construction ownership group financing on a pari-passu basis with • current lender does not provide existing lender and serviced construction financing construction component • not a ground-up construction; • Experienced owner / operator conversion program; determination • Strong sponsorship of equity • high vacancy Exit strategy: upon completion of the conversion program and lease-up of the property, refinance on either conventional or insured basis 5
EQUITABLE BANK COMPANY OVERVIEW Equitable Bank is the 9 th largest independent Schedule I bank servicing clients coast to coast with offices in • Vancouver, Calgary, Toronto and Montreal. • Founded in 1972 initially as a trust company, it is publicly traded with a market cap of $1.2B and over $17B in assets under management with over 500 employees • Primarily focused in 3 areas of business: single family lending, commercial mortgage lending and deposit services which also includes a new digital banking platform launched in 2016 LENDING PROGRAM STRENGHTS • Strength is in shorter term, asset repositioning transactions • Ability to structure and participate in complex transactions with partners providing a “one -stop- shop” solution for borrowers and provide financing beyond the traditional 75% LTV levels • Open to sub-debt with the right lender/partner as well as participation in loan syndications whether on an A/B structure or on a pari-passu basis • Commercial Finance Group (CFG) program covers most standard asset classes including multi-res, retail, office, industrial, retirement, self storage, student housing, condo inventory and land. LENDING PROGRAM LIMITATIONS • Pricing on term financing remains somewhat wide of the market for standard asset class products • Cannot provide secondary financing • Current policy restricts financing on hospitality product • Limited land bucket as well as interest-only financing 6
EQUITABLE BANK COMPETITIVE ADVANTAGE • Smaller bank, more nimble hence the ability to execute quickly • Balance sheet lender with significant room to grow the portfolio • Open to work with other lenders on loan syndications and complex transactions OPPORTUNITIES IN 2017 • Without the capital markets opening up, lenders are constantly having to manage individual borrower limits which will require either “selling down” some of the risk and/or syndication of new facilities • Government regulators’ intervention to slow some heated markets in single family could result in added opportunities for purpose built rental product 7
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