Construction cranes send a powerful message about the future of a place, including its economic outlook, busines confidence, and consumer behaviours that are driving the project. That’s why Scotiabank’s Commercial Real Estate Banking team is sought-after by developers, builders and investors, for their insights on market trends, and their ability to structure financings for complex developments, especially after a game-changing pandemic.
Bird’s-eye view of a shifting landscape:
If anyone has a bird’s eye view of the lasting impacts of COVID-19, it would be Scotiabank’s Real Estate Banking Specialists who talk with clients about Canadians’ shifting housing preferences, the evolution of the modern workplace, and the quickened growth of online commerce. And they have a cross-country perspective, from BC’s dynamic condo and suburban homes sector, to Quebec’s diverse office, industrial and residential rental market.
“We see a lot of projects, throughout the development process, from land purchase, to planning, to sales, construction and occupancy, and our clients value our opinions on market trends and opportunities,” says Vito Mangialardi, Vice-President, Commercial Real Estate Banking in Quebec.
For instance, Mangialardi sees data on office and hotel vacancy rates in downtown Montreal, as major employers maintain work-from home orders, impairing that city’s hospitality and tourism sectors. He can also describe the rise of industrial real estate: “It is definitely the big winner among the asset classes, since the pandemic accelerated the trend of online shopping (e-commerce) – and possibly increased local manufacturing – as bricks and mortar retailers change and the need for warehouses, distribution centres and production facilities rises sharply.”
Surprisingly, Mangialardi reports that, despite headlines about vacant office towers and shopping centres, rent collection levels among clients with income-producing properties have remained healthy:
“At the beginning of the pandemic, the Bank and the government did offer relief programs, but rent collection issues have been minimal among our clients, since they are sophisticated, well-capitalized operators who know how to navigate the ups and downs of any cycle.”
- Vito Mangialardi, Vice-President, Commercial Real Estate Banking in Quebec.
Similarly, Brad Anderson, Scotiabank’s Vice-President, Real Estate Banking for Western Canada, can describe the rising demand for residential properties, across all unit types, from single family homes and townhouse communities to multi-unit condos and rental towers.
“Going into the pandemic, the supply shortage of multi-unit housing, and pent-up demand for residential housing in urban areas, was well known,” recounts Anderson. “While fewer projects moved forward in early 2020, cautious developers worked behind the scenes to obtain permits and prepare to launch when public confidence returned. We’re seeing that happen today, with a lot of projects now in response to pent-up local demand. There’s a lot of velocity in sales across most markets, including an uptick in prairie home sales and prices, despite the challenges faced by the oil and gas sector.”
Anderson acknowledges that areas like downtown Vancouver, Edmonton and Calgary face stunted demand, in part due to reduced immigration, and a flight to the suburbs, during the pandemic. For these and other urban centres, he is encouraged by Scotiabank Economics’ recent projection that the federal government’s increased immigration targets will fuel real GDP increases in the provinces that are typical destinations for newcomers.[1]
Anderson has also observed an increase in purpose built, multi-unit rental towers - a response to a shortage in this segment of the market.
Helping clients “Go, or no go”:
While Anderson sees plenty of client enthusiasm for future projects, he notes that developers may endure a long, slow-moving process to complete the necessary entitlement stages for their lands, before they can put shovels in the dirt: “It can be a real bottleneck to feed real estate supply to a market and satisfy pent-up demand, so developers must have the capital to withstand such a process, decide when and whether to ‘Go, or no go,’ and seek their developer profit.”
That’s where Scotiabank’s Real Estate Banking team comes in, by helping clients structure their financing terms, maturities and conditions in the optimal way, through each stage of a development. “It can take many years for a development to go from the drawing board to completion, with delays due to public resistance, zoning and approval processes, and the state of the market. Bridge or land financings are a solution that we provide to our clients, which allow for capital preservation and increased returns on developer capital,” says Anderson.
“We can provide a wide array of financing options to clients, such as top-up, mezzanine financing in select circumstances to allow for more efficient use of capital. We can also provide for more aggressive speculative financing for certain projects, should the developer feel that marketing the finished project would be better at completion,” says Anderson.
- Brad Anderson, Scotiabank’s Vice-President, Real Estate Banking for Western Canada
These unique financings would require some form of return and security enhancement to the Bank.
Mangialardi notes the importance of providing flexibility to clients when conditions change: “We worked with a client on a mixed-use development with a large office and retail component, which raised questions about its viability due to recent work-at-home and shopping trends. We went back to the table with the client and created the right structure to give added confidence to the client and the other bankers participating in this syndicated loan.”
Mangialardi adds that the pandemic demonstrated how Scotiabank takes a true, long-term view to establish deep relationships with clients:
“We have a long-term relationship view for our clients and we won’t stop supporting them when there is a bump in the road. Instead, we stand by them, particularly during the pandemic when we offered relief programs such as deferred capital and interest payments to our clients, to aid their cash flow and provide flexibility to their tenants.”
- Vito Mangialardi, Vice-President, Commercial Real Estate Banking in Quebec.
Thinking of all the effort that occurs before construction cranes appear on a site, Anderson reflects on the way they serve commercial real estate clients:
“We understand what they need to move a development along, and we have the knowledge and capital to deliver, in tight or prolonged timelines. With our long-term approach to client relationships, we are helping them break ground on appealing new developments across Canada.”
- Brad Anderson, Scotiabank’s Vice-President, Real Estate Banking for Western Canada