First National Financial LP

Borrower Perspectives: Jim Spatz, Chairman & CEO and Paul Murphy, Chief Financial Officer, Southwest Properties

  • First National Financial LP

When Simon Spatz immigrated to Canada in the 1950’s, he bought a grocery store on Morris Street in Halifax. While running and growing the grocery business, Simon also began to forge his real estate legacy. He first purchased rooming houses on Morris Street, then a small apartment building and progressed to his first apartment development project. After a successful 15-year medical career in Montreal, Jim Spatz joined his father in the business in the late 1980’s and took over leadership when Simon retired. Southwest’s portfolio now includes 1600 apartment units, hotel properties and office assets. The company is also a majority shareholder in Premiere Suites, the largest Canadian provider of corporate furnished suites.

Jim remembers what it was like to grow up in the house of a great entrepreneur. He went with his father to construction sites on the weekends. It was those visits – walking up structures in development and smelling the freshly poured concrete – that instilled in Jim a passion for real estate and a business destiny that he knew he would ultimately fulfill.

Paul Murphy, a C.A. by training, spent a large part of his career at a consulting firm and transitioned from there to a real estate investment trust before joining the Southwest team five years ago. In addition to overseeing Southwest’s financial requirements, Paul is also responsible for IT strategy, insurance requirements, acquisitions and divestitures, tax planning and risk management.

Jim and Paul share their unique perspectives on the Halifax market, Southwest’s vision for growth and how First National aligns well with their ambition to stretch the market with quality, innovation and excellence.

Jim Spatz, Chairman & CEO

What are your perspectives on the Halifax market and where do you see it going?
JS: Halifax is re-urbanizing in the core at a rapid pace. For close to two decades, Halifax grew on the periphery and stagnated in the core. It was like a doughnut – solid on the outside, with a hole in the middle. There was more value outside of the city than in the core of the city.

In the past five years, re-urbanization has been happening with a vengeance. There are more cranes in the sky than ever before. We are seeing apartment and condo developments on the Peninsula at an unprecedented rate. When compared to Toronto and Vancouver, Halifax is still quite affordable. There is a pent up demand from millennials, new immigrants, baby boomers downsizing and people moving to the centre from both rural Nova Scotia and inside the municipality itself. Vacancy hasn’t really budged. For example, our Maple project, which opened a little more than a year ago, had all 300 units full inside of a year. And that’s a big building for the Halifax market.

I really see what’s happening now as a virtuous circle. The influx of people supports the restaurants, bars, shops and services, which in turn support the growing density. As we continue to move around and around that circle, it becomes more attractive to live here. It’s a very exciting time to be in Halifax.

What is your vision for growth?
JS: My father started this company with specific values at its core. As part of our development focus, we are driven by a mission to create great spaces where people can live, shop, work, eat and play. Maple, which is a high-rise by Halifax standards at 21 stories, is a marquee, beautifully designed, architecturally compelling, amenity-rich building with well thought out units.

We’re starting to see a trend where units are getting smaller as a way to create affordability. Our focus is on functionality. We want a 550-square foot unit to be better than someone else’s 700-square foot unit. We actually mock up our units before we build them so we can physically stand in and move around the space to know what it feels like and how it functions. It’s important to us to step into the shoes of our prospective tenants and buyers, so we can drive constant improvement and deliver value.

How does First National support your vision with its more than a lender approach?
JS: We target our buildings to be the best in the market and we always aim to set precedents in terms of quality. In order to support that strategy, we have an ambitious vision as to the rents that we want to achieve. First National understands and supports our ambition. Our Maple project is a great example. We pushed the appraiser to a rental number that we knew we could achieve and we eventually exceeded that number. First National was confident that we would be able to succeed in setting new benchmarks with that project and supported us every step of the way.

I also really appreciate the level of engagement across the company. When we were in the early stages of the Maple project, Moray Tawse visited the site and was very impressed by what we were doing. In fact, Maple won the 2018 Canadian Federation of Apartment Associations award for the best new rental building in the country, and Moray predicted it when he saw the property. He appreciated that we were doing something truly exceptional in terms of having a great building, in a great location, with amazing units and fantastic amenities. That level of involvement, right from the top, translated into the financing package that First National provided and continues to be the foundation of our relationship.

In reflecting on your relationship with First National, what stands out most in your mind?
JS: In our company, we are very ambitious in our desires to reach past the expected. I have the same sense from First National. Everyone there understands us, respects our ambition and embraces what we are trying to achieve. As we stretch, First National stretches with us. We align really well from that perspective.

My father’s values are at the heart of why we are successful at Southwest, and they persist today. He used to say, “Build a good building.” That simple statement inspires us to invest in doing better than our best and never accepting anything less. First National has similar values and the same striving for excellence, which is the foundation of our partnership.

Paul Murphy, Chief Financial Officer

What are your perspectives on the Halifax market and where do you see it going?
PM: Halifax has really matured in the past decade, and there is a resurgence and vibrancy that we haven’t seen in a long time. There are a lot of cranes in the sky, construction is booming and there is a definite flight to the downtown core. The size, scale, architecture and quality of new developments are uncharacteristic of what people typically associate with Halifax. The apartment market is strong, especially in the downtown core. There is growing demand for new product with units that are well designed, well located and offer great amenities.

Where do you see the opportunities?
PM: We are very fortunate to be in the apartment business, which is the strongest sector of real estate in Halifax. Our development plans for downtown are very exciting. Projects that are coming to market are getting absorbed quickly, and I think that has a lot to do with the resurgence of the core and the stability of the city with the presence of government, universities, hospitals and a rapidly growing tech sector.

What is your vision for growth?
PM: Our goal is to create beautiful spaces that are well designed, functional, livable and sustainable. We want to do the right things as a developer and build exceptional real estate today, so that our buildings outperform for decades.

How does First National support your vision with its more than a lender approach?
PM: Our reputation has contributed significantly to our success. We try to do the right things, and want partners that align with that mindset. With First National, we have a lot of commonality of values between our two companies, especially in terms of commitment to excellence and high performance standards.

Everyone that I’ve dealt with at First National has a deep passion for real estate and development. Our team there takes a genuine interest in our projects, our company and our vision. Even if First National isn’t involved as a lender, the passion is still there. And that, to me, is quite remarkable.

How has First National worked with you to find opportunities in the alternatives?
PM: First National never takes the path of least resistance. Our team there presents workable alternatives, so we can consistently meet our objectives.

For example, we have a 300-unit apartment building. Our vision was to bulk lease 21 suites to our Premiere Suites business. We felt having extended stay in such an exceptional building would be an added amenity for residents, and our expectation was that the bulk lease scenario would not cause problems with CMHC.

All the way through the project, First National managed expectations with CMHC. We had First National tour CMHC through the building. We discussed the bulk lease, and nobody flagged it as an issue -- until the very last minute.

Our team at First National shifted into high gear to find alternatives to address the issue. We had the collective smarts of our team in Halifax and specialists in Toronto working on it. Together, we worked through the issues and found the right alternative that suited CMHC. In the end, we secured the loan amount that we originally wanted.

What stands out most to you about your relationship with First National?
PM: It’s the people. They make the difference. Their enthusiasm about our projects is unbelievable. And it’s contagious. I also appreciate how quickly everyone reacts. There is no undue process. Everything is organized and purposeful.

Surprisingly, customer experience is something relatively new in the real estate industry. It’s starting to be the hot topic at conferences, and developers are becoming more aware of its importance. But the experience of our residents has always been important to us. It’s part of our value system. And that’s why we appreciate First National so much. I feel that First National genuinely cares and is always finding ways to make my experience better as a borrower.