Over the past 30 years, mortgage broker professionals have become a force in the residential housing market in Canada with the help of non-bank lenders such as First National. Now, First National is working hard to bring more brokers into the commercial mortgage market as a means of generating mutually beneficial growth while better serving the needs of commercial clients. Ed Kieser leads First National's Commercial Financing & Broker Services business where he has originated more than $1 billion in commercial financing in partnership with brokers. In this interview, Ed talks about some of the deal details he looks at in assessing a commercial borrower's funding request.
Ed, when we last spoke, you indicated that First National has a broad appetite to fund commercial loans. What's the success rate brokers have when seeking commercial financing from First National?
The success rate brokers and borrowers have with First National is fairly high. That said, we endeavor to never waste our partners' or clients' time, energy or money and so we give honest and true assessments from the start, based on our market industry experience and expertise. Sometimes this leads to a rejection, but it's a timely one.
What do you look for in a commercial loan application?
We give preference to institutional-type security and strong, experienced sponsorship that meets our lending requirements in both credit and net worth. More precisely, we look very carefully at the borrower's track record and assure ourselves that the borrower knows what they are doing because they've done it before. It's why you will often see First National lending to second- and third-generation developers and property owners – these are people who have spent their entire lives in the commercial real estate business.
Let's suppose the request comes from a broker with this kind of experienced client. What happens next?
After our initial consultation, screening and the receipt of preliminary information for the loan request, we’re able to determine the likelihood of a potential approval and potential terms and conditions that could be offered or even potential alternative options.
Do borrowers typically receive the actual terms and loan amounts that you set out during your preliminary assessments?
On full review of all required documentation, our estimates are generally in line with the final outcomes for the borrower. We don't believe in bait and switch, because it wastes everyone's time.
Presumably, you don't lend on every opportunity brought forward. Practically speaking, are there some indicators that a broker can use in screening client requests to avoid rejection?
Correct, we don't lend on every opportunity. That's why we have a robust initial screening process. Without having the background story and the information on the property and borrower, it's difficult to generalize on what would make the cut, but, as I said, we do give preference to institutional-type security and strong, experienced sponsorship.
What's a typical LTV on a commercial loan?
Loan to value depends on the asset class and the type of financing being offered, whether it's insured or conventional. First National does both. Typically, multi-unit residential rentals that are CMHC insured can entertain up to 85% loan to value. CMHC also has a new affordable housing program where LTVs can be greater than 90%. When it comes to conventional financing, the maximum is 75% loan to value, although on conventional construction deals, we will consider up to 80% loan to cost for project developers who have proven experience and track records in like-projects.
If a mortgage broker brings you a deal that you will not fund, is that the end of the story?
No, when possible, we'll work with our partners and their clients in shaping the request so that we can fund it and when that's not possible, we try to steer our partners in the right direction so that they can potentially obtain financing with another lender.
Do you have some tips on how to succeed as a service provider in the commercial market?
I do and it will be the topic of our next installment. So stay tuned.
If you have a question or a commercial deal to make with First National, you can reach Ed and his team at:
Ed Kieser, Assistant VP, Commercial Financing
Devin Sembaluk, Senior Analyst, Commercial Mortgages
Lisa Wright, Analyst, Commercial Mortgages