April 2, 2024 • 45 mins
Episode 59: Matt and Taylor are joined by Will Pigott. Will is currently an Associate Director and Team Lead at Scotiabank from Kelowna, BC, who will be transitioning into a Commercial Realtor in the summer of 2024. Will has spent the last 7 years covering Northern BC and the Okanagan as a Commercial Banker, and will be looking to leverage this experience and network connections to serve his clients.
Will is here to discuss: → The changes to the Basel Framework (international regulatory standards for banks) after the latest financial crisis in 2023 and how that affects a lenders ability to distribute their capital. → Why banks are trying to use promotions and lower rates to entice customers into multiple products. → And the differences in financing a commercial or residential property.
Will Pigott's Instagram: @wpigott
Will Pigott's LinkedIn: @WillPigott
The Kelowna Real Estate Podcast is brought to you by Century 21 Assurance Realty, the gold standard in real estate. To learn more, visit: www.c21kelowna.ca
Matt Glen's Website: www.mattglen.ca
Matt Glen's Email: Matt.glen@century21.ca
Matt Glen's Instagram: @mattglenrealestate
Taylor Atkinson's Website: www.VentureMortgages.com
Taylor Atkinson's Email: Taylor@VentureMortgages.com
Taylor Atkinson's Instagram: @VentureMortgages
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
back to the Kelowna Real EstatePodcast.
I'm mortgage broker host, TaylorAtkinson.
And I am your real estate agenthost, Matt Glenn.
What's going on, Taylor?Yeah, having a pretty good, you
know, Good Friday, actually.
So we're recording this intro, but
yeah.
Easter Easter weekend is here, so
everyone gets a bit of a break.
Yeah, Great Friday.
My son was born last year on GoodFriday, so I renamed it to Great
(00:21):
Friday.
Nice.
Yeah, the last year was april 7thso i've got a couple of weeks
still or 10 days or so yeah yeahno i'm looking forward to that
birthday party yeah good yeahwe've had two one-year-old
birthday parties in a row when youhave a one-year-old you'll have
lots of friends that are alsoone-year-olds so you go to a lot
of baby parties and it's awesomeat least i'm looking forward to
that birthday party yeah goodshort you know it's like a
two-hour window because everyonehas a nap schedule so it's like
yeah they're short there's shortthere's drinks there's cake and
(00:42):
you get out of there yeah it'sactually okay well what's going on
i mean it seems like every daythere's legislation changes and
new bills coming out so what'shappening yeah so the renter's
bill of rights proposed so thiswill allow the renters to use
their rental payments that theymake as their credit score when
they're looking for a mortgage toeventually get into the housing
market.
Landlords will have to disclose
(01:02):
what units were previously rentedfor.
And a standard lease agreementnationwide.
Yeah, standard lease agreement.
But like, BC has a pretty strong
lease, so like I think ifanything, it's going to stay the
same, if not get a little weaker.
Can't imagine it gets any weaker,
so it's probably going to stayvery similar.
I mean...
I'm okay, I think, with the
standard lease agreement acrossthe think the standard lease
agreement's fine as long as it'sdecent and protects both parties
(01:24):
instead of in BC where it justreally protects the tenant.
I mean, if I was in Alberta, I'dprobably be pretty upset because
the lease agreement- Well, that'swhat I'm saying.
Are they going to make the BC onestronger?
There's absolutely no way thatAlberta is going to love that.
Well, I mean, is also just astandard lease agreement, but they
don't have rent control?Or are they talking about like the
same rent control across Canada aswell?
(01:45):
Yeah, I guess we have theResidential Tenancy Act in BC.
So it would just be the leaseagreement, not the whole act,
obviously, across the country.
Yeah.
But I mean, the lease agreementfor BC we get from the tenancy
branch branch anyways, but yeah,we do not oppose to the standard
lease.
I'm not opposed to the credit
score.
I think that's actually a decent
idea.
They've been talking about that
one time.
My thought when I heard the credit
(02:06):
score thing was like, man, itdoesn't, this is more leverage for
the landlord.
Like, listen, don't ruin my place
or I'm going to give you aterrible credit score.
But then you were saying that it'sautomatic reporting from your
digital payments or from yourelectronic payments.
I that's how it's supposed to be.
But I mean, policing any of this
is going to be like so time Evenme just thinking about this is
crazy.
How much money is it going to cost
just to push paper to get thisYeah.
(02:27):
And then disclosing rent for theprevious history really doesn't
achieve anything.
It doesn't help anyone negotiate.
I mean, none of this really makesa ton of sense.
Again, to me, it's like they'regrasping at low hanging fruit
media straw just to act likethey're doing something.
But the resources that they'd bespending on this is just insane.
I would love to see the budget,the man hours allocated to it,
(02:50):
because I feel they could probablybuild a hundred houses instead.
Way more than a hundred.
A hundred houses a day.
Yeah.
It just, I don't know.
It's chaos.
We had an episode, what, about a
month and a half ago, NicoleWatson came on, CPA, accountant.
We spoke about- Yeah.
I saw this.
i was thinking about her yeah beartrust agreement which like put
accountants under a ton of stressover the last couple months yeah a
(03:13):
ton of stress over the last couplemonths put everyone under a ton of
stress like listen i was callingclients like you co-signed on this
one you should call youraccountant yeah and everyone was
working on this until a few daysago yeah and now they've just like
decided to change it again wellbecause they cause they realized
it was insane.
Like I don't even know how many
thousands of houses would not havereported that they co-signed or
that they were, had a 1% name on atitle.
(03:35):
They had no idea.
I never thought about it.
And now they got these tax rules.
was also a slight revision on the
short-term rental legislation andthey kind of broke down.
Like if you were operating beforeDecember 2023, and the building
has a front desk and like a coupleother little requirements, then it
potentially could continue tooperate in the future.
And like, I think that's great.
That's positive.
But stop changing your mind.
Like, I can't keep up.
I Is that supposed to come in May1st?
(03:58):
Like that whole thing?So it is.
I guess they can't change theirmind now.
Yeah.
Yeah.
I appreciate that step.
But I think they're opening up a
can of worms like they're givingthemselves you know more thread to
pull on and then what was thatthing beside the ramada they're
gonna build that little yeah forshort term renting oh yeah what
yeah same mark anthony group whichis great like a 12 story kind of
(04:20):
boutique hotel well well somethinghonestly we've talked about this
before something needs to happenwith that site sure my god i think
originally it was like a four tosix story kind of wine tasting
venue, like, you know, a greatlittle spot.
And I would probably do the samething if I was a developer and I
knew that short term.
But why are we like taking those
units off and then building?It's just, it's tough, man.
I'm exhausted.
Yeah.
But yeah, to focus on some morepositive news this week, Century
(04:43):
21, who sponsors this show andevery show moving forward, threw
on a great award ceremony at MountBushry Winery.
My My God, they throw a party.
Yeah.
It is awesome.
Yeah.
Yeah.
Where were we?
Mount Bushry at the ModestButcher?
Yeah.
I guess the Modest Butcher was
upstairs, but we had a fantasticparty.
Wine was flowing all night.
We gave out our awards.
And like, I've played hockey mywhole life.
I have a lot of trophies.
(05:04):
I have never got trophies like
these trophies, man.
These are quality trophies.
They like have some girth.
They have some weight to them for
the Centurion Awards.
So that Yeah.
a fun night.
Everyone, I think, had a great
time there.
Yeah.
Judging by social media after,everyone had a great time.
to you and my wife, Emily.
You guys both did a fantastic job
(05:24):
last year and got someacknowledgement for it.
Now you're making me kind ofthink, though, like I played
sports my whole life, too.
And I think I got some T-shirts to
show for Yeah.
Honestly, Emily and I are at the
best brokerage there's no doubtabout it that night i actually sat
back with my wife we got our spotsright by the bar so it was perfect
the food just kept on coming to usand also everyone had to get
(05:47):
drinks so we just got to talk toabsolutely everybody in the place
over and over again and i just wasthinking like we have something
good going on at this brokerageand i love it if you're looking
for a change or you want some morehelp like give max a call or give
me a call like Like I can't sayenough about it.
(06:08):
I just love it.
Or if you just want like a good
party and wine and yeah.
Yeah.
Heavy award.
award.
So going into show, well, today Iguess we brought on Will Piggott.
He's a friend of mine.
I was introduced to commercial
mortgage financing broker.
He used to work for one of the
very large banks, a of creativedeals.
He's recently changing over tocommercial real estate agent.
So we're kind of in thistransition period, but had some
great insight on some regulationchanges that came in from the
lender perspective and why they'vekind of tightened their asset
portfolio a little bit yeah butthings that were like not everyone
(06:31):
in the public would know it but ithas major implications for like
the housing market and you justit's one of those things that
happens you don't you would neverknow until you talk to a guy like
will yeah it was an interestingepisode Obviously, it was
definitely in your guys' lane as alending more, but I loved it.
(06:54):
Yeah.
And I it goes hand in hand.
And what we've said before on theshow is like, as the end consumer,
you're never going to know all ofthis information, even as like a
mortgage broker.
I'm not going to know all the
rules of a real estate agent andvice versa.
So you just really got to workwith people you trust and rely on
(07:17):
them to have your best And it wasinterest.
really fun to so, chat yeah, topeople you trust and rely on them
to have your best interest.
And so, yeah, it was really fun to
chat to about that kind of stuff.
Amen.
Like, honestly, it was like, Ijust did not know.
It was like I was getting smackedin the side of the face with
information.
You kind of think as an agent,
like, I know what's going on withmortgage broking.
Obviously, you kind of know thebasics.
(07:37):
But then you have a conversationlike this.
And it's like, yeah, this is whyyou have professionals.
No, and just in general, I mean,he's an awesome guy.
He's out ski touring and livinghis best life.
So yeah.
If you want to talk to him about
some commercial financing stuffand or commercial purchases or
selling or whatever, yeah.
Reach out to him.
He's, he's a good guy to chat toand have on your contact list.
So enjoy the show, guys.
Happy Easter.
Yeah.
And congratulations for your work.
again, Matt, thanks for coming onthe Hey, man.
Will, show, welcome Yeah, to theshow.
Thanks for having gents.
me, This is awesome.
Yeah, so how we like to start ourshow is just kind of what does
(08:00):
your perfect Friday look like?This is a Kelowna real estate
orientated show.
So a bit of business and then
leading into the weekend, havingYeah, totally.
So I usually start my day at 630,try and get to the gym.
I find a little exercise reallystarting the day with purpose
really makes a big impact on myfocus for the day.
Usually try and skip breakfast.
(08:20):
I'm kind of a half-hearted
intermittent faster.
I don't let it control my life,
but if I can make it till noonwith a cup of coffee without
eating and it helps me, I don'tfind the energy impact is too
significant.
So my role is kind of a mix of
(08:43):
business development and creditunderwriting.
So if I can mix in both within aday, I'm usually feeling pretty
good.
So maybe the morning's hammering
out some client meetings or somecold calls in the doing afternoon,
a usually underwriting, feelingpretty So maybe the morning's
good.
hammering out some client meetings
or some cold calls.
In the afternoon, underwriting,
doing a little bit of analysis.
And then in the summertime, if I'm
on the golf course at 3.30 with aclient, that's usually a nice way
to mix in some business withpleasure.
(09:04):
I haven't quite figured that outfor the winter months.
Got to find some prospects thatlove skiing as much as I do.
Get the sim.
Yeah, that's the 2025.
That's on my hit list.
Well, I mean, i'm a client that
loves to ski hey man we gotta makethat happen i see your instagram
stories you're out there shreddingpowder all the time and you know
here i am behind a just please ilove the business golf idea
(09:24):
honestly i'm trying to embracethat this oh it's the best way to
get to know someone kind of at adeeper level you know conversation
evolves so much in four hours andyou can really see how somebody
operates on the golf course,whether they're a putter thrower
or just like calm, cool, collectedI course, doing a presentation at
my office last year, like probablyaround this time, probably in the
spring.
I was like, my goal, I want to go
golfing like once a week withclients or random people and just
meet people on the golf course andknow them.
And I was like, and I have a babydue in a couple of weeks, just
(09:46):
immediate laughter.
What's so funny?
What's so funny about this?and it turns out the whole year
i've been golfing like two timesand they're both work events so
like didn't get out once so butthis year this year is my year
let's make it yeah life gets lessbusy as your kids get older for
sure i know okay well backbusiness, because some of us work
around here, not like you two.
So you work for a major Canadian
Institute for Lending on thecommercial side of things.
(10:08):
What have you kind of seen in thelandscape over the past year to
two years?Like obviously, you know, Bank of
Canada has come out and, you know,Matt and I are more focused on the
residential side of things, butthe commercial point is very
important because a lot of theseprojects are being facilitated
from commercial lenders or evensmall business owners supporting
the economy.
So what's been your guys'
position?How's your portfolio look?
(10:28):
Are you guys deploying money inthese projects?
Yeah.
So it's been, I'd say, a little
bit slower in the last couplemonths, for sure.
But in part, the rising interestrates have a lot of people on the
sidelines.
So maybe you're seeing certain
opportunities that are slightlymore marginal, or it's just harder
to debt service at the higherborrowing costs.
So that's definitely been a littlebit of a pullback on transactions
taking place because people arekind of waiting to see when are
(10:49):
interest rates going to fall andthen maybe make a move then.
But it's been a pretty dynamicyear, I'd say, for 12 to 18 months
in the commercial banking side ofthings.
There have been some prettysignificant regulatory changes
that have shifted how the banksthink about doing business.
So Basel is essentially like aninternational set of rules that
all the banks have to adhere to.
And beyond that, you've got OSFI,
(11:10):
who is the Canadian bankingregulator.
So they can make some rules in andabove that.
But on the heels of the financialcrisis, you'll see these
enhancements to the Basel rules.
So in 2023, there was a new set of
rules that came out.
And the biggest impact that we
felt from that is really thecapital allocation that the banks
(11:30):
have to have.
So there was a 2% increase in the
common equity or capital equitycomponent that the bank has to
hold for every risk-weighted assetthat they have.
So 2% increase on the trillionsthat the bank have out in loans is
a pretty significant change.
So essentially, within the course
of years, billions of dollars thatthe banks have to hold more in
equity for all the money thatthey've already lent out.
So with that, we've really seen abig shift in capital allocation
(11:53):
being a focus for the bank.
So you've always got the credit
component whenever you're lookingto lend out money.
Now there's the business element,where are we deploying the
capital?Does this make sense for the bank
from a financial perspective?This is super interesting.
This is something that most peoplewouldn't know of a rule that
changed.
Yeah.
It was kind of behind the scenesand even somebody working in the
(12:16):
banking space, it's kind of beenfluid in how this comes out.
So where we've seen the biggestimpact of that is return on it's
very important metric that thebanks look at.
Whenever we're looking to do aloan, that's basically what we
look at.
How much equity are we setting
aside?What's our return on that amount
of money?So when you're having to hold,
(12:36):
let's say, 2% more money than youwere before, your return on equity
has already been impacted.
So we felt that in our internal
cost of fund across all the banks,you're basically seeing more of an
internal cost of funds for anydollar that you're lending out.
So not only the Bank of Canadahiking interest rates, are you
going to feel that obviouslyimmediately, but this is something
(12:58):
else that has been kind oftrickling out over the last year
or so.
And it's something that people are
still getting grasp of, but it'shad a pretty significant impact in
what we've seen over the last 12to 18 months.
So if So if that regulation comesout, just thinking about this,
they can't just get to 2% rightaway.
It probably takes a while.
Yeah.
So there's an implementationperiod in which that would be
(13:20):
required.
But as Canadian banking systems,
pretty sound.
So they bring out this rule,
everybody's already on side of it,but you want to make sure that
you've got quite a bit of wiggleroom.
So it's not like it was a materialimpact right out of the gate from,
oh no, we're not going to meetthese requirements.
Everybody was pretty much there,some more so than others, but
you're not going to be tiptoeinglike the minimum requirement.
(13:42):
You're going to want quite a bitof wiggle room.
So really a lot more attentionbeing paid to these risk-weighted
assets and where the capital isbeing deployed.
Interesting.
Would a way to recoup some of that
or build that buffer in, like justthat time of renewal, say somebody
has a mortgage product coming upfor renewal, you as the lender
would just say, our renewal know,X amount and it's quite a bit
(14:03):
higher than some of the otherlenders.
And then somebody's going toswitch their mortgage to a
different lender.
And then you recoup that capital
back or like.
that could be a scenario, you
know, where you're basicallysaying, hey, we need our return on
equity to be X. And this is wherewe feel comfortable renewing a
facility.
And if you're not there, like if
you got to take that businesselsewhere, that's just the way it
(14:23):
goes.
So yeah, we have seen it on the
residential space.
There is a lender that basically
it was just out of the space forthe last 12 months.
They've finally come back to themarket with like competitive
rates, which is nice to see.
But you do see that every three,
four or five months, differentlenders will have a more
aggressive rate and deploy thatcapital because they don't want
the cash just sitting there notmaking money.
(14:45):
Absolutely.
So you're really walking quite a
fine line.
And so you could see certain banks
that maybe have a better capitalstack, more capital to deploy.
And those banks can be a littlebit more aggressive on the rates
that they're able to providebecause they've got that money
that's sitting there, maybe notgenerating as much as it could.
So there maybe is a bit ofdisparity between some of the
banks right now with these changesthat have been coming out.
(15:07):
Man, I need to work on my capitalstack.
do you see in terms of like, whatdo banks like as a portfolio, like
to allocate the assets?Do they want a certain percentage
in residential, commercial,industrial, construction?
I guess, what's the least amountof risk with the best amount of
Yeah.
So, I mean, asset types, like the
flavor of the month can alwaysshift, right?
(15:27):
Like right now, office isobviously a bit of a tough space
to be in.
In Kelowna, you've got one
developer finishes a massiveproject.
Now you've got this a bit of atough space to be In in.
Kelowna, you've got one developerfinishes a massive project.
Now you've got this insane amountof supply that can completely skew
the market.
So I would say office is one
that's probably a bit tough.
But each asset that we're
(15:47):
evaluating is going to have itspros and cons.
So really understanding what's thetenant makeup.
You know, if it's residential,where is it located?
I wouldn't say that there's'sde-risked based on a certain type.
There's obviously so manyimportant characteristics.
But from a commercial perspective,looking at who is the landlord,
what's their experience, who'smanaging the property, the tenant
makes one of those leasesmaturing.
What is the risk that someone'sgoing to walk from their lease
within the middle of our term, andthen we're not going to know where
(16:09):
our loan's going to get paid backfrom?
Those are the key things that welook at when you're looking at the
income producing properties.
But I'd say the big thing for
banks right now is relationship.
Like we hear it so much across all
the banks.
Basically, we want everything that
you've got.
And so before maybe you would
benefit from having your eggsspread around, you know, maybe a
(16:32):
little bit over at bank A, alittle bit at bank B. Now there's
more value for the customers.
If you have all your eggs in one
basket, they can put more weighton all of the products that you're
taking and give you a better dealas a result of that.
I think that's been a shift thatwe've seen in the last 12 to 18
months.
As we look at things holistically.
That's really you a frontlineapproach in what we're looking at
for new taking, customers.
know, As we look Is as well?
(16:52):
It's residential as well.
So the funny thing with that is
like I have that conversationpretty frequently with clients
because I go, okay, here.
That That of me.
Yeah, I just pocketed the extraprofits.
So there's certain lenders that dolike a cash back promo, but to get
the cash back, like when we fundthe mortgage, you have to have
your mortgage payment coming outof their accounts.
(17:14):
You have to set up an account withthat lender.
Other lenders will provide abetter rate, you know, kind of
like a cash back, but it's asavings over the term.
And it's the same deal.
You have to sign up.
You have to have an account.
They're really trying to like claw
people in like, so who would knowthat one works for?
Yeah.
So it says it on our rate sheets.
It says, you know, these are thestipulations of the cash back, or
(17:36):
here's a standard rate.
If you do not want to bank with
this bank discounted rate, if youcome in and you set up an account
and you have a one-on-one meetingwith said lender, it's not like
life changing.
We're not talking like they're
going to give you a percent Well,yeah, we can talk.
Yeah.
It can be impactful though.
It's really trying to get awayfrom the single service product
(17:58):
offering.
Yeah.
That's been kind of the flavor.
And really trying to 12 months, 12
to 18 12 to 18 months, I'd say.
I think like, you know, I'm kind
of guessing where it's comingfrom.
And I think it's largely fromthese capital requirement changes
that the regulators have beenimposing.
Right.
Because then as a client, you're
going to hold other assets,investments, cash, et cetera,
there.
And that's going to help build up
(18:19):
their capital.
I mean, if you're taking a piece
of the bank's pie in terms of likeborrowing money from them, they
want to make sure that like ifwe're setting that aside for you,
what are the other products thatyou may be taking on rather than,
you know, certain banks maybe werereally going hard on just trying
to do as many mortgages as theycould.
And the thought being maybe we'llget the extra business that comes
(18:40):
from it.
Sometimes you do, sometimes you
don't.
And I think now with the fact that
capital allocation is getting sucha focus, like if you're not going
to bring us that other stuff,maybe we'll give you an offer, but
it's not going to be as good forour clients that have everything
with us.
That is interesting.
Yeah.
Sorry, I don't need to dwell on
this, but like, I feel like...
You can't get a cheaper rate
match.
This is something that you should
plan for in advance or can youjust change it at the time of
(19:03):
applying for a mortgage?Yeah.
Time of applying for the mortgage.
So like, you know, there's a
couple of major lenders who aresuper competitive in the
residential space, very equal typeof products.
And basically the requirement isfor one of them, you just have to
have an in-person meeting and setup an account before the date,
your mortgage funds.
And the other one, you have to
have an account set up and yourfirst mortgage payment being taken
from that account, like an autowithdrawal to get the cash back
(19:25):
incentive.
Yeah.
Maybe the relationship buildingaspect, it's not like you need to
bank there for five years, atleast on the residential side.
I'm sure commercial may differ.
Yeah.
I mean, if we are looking atsomething and we understand what
would come from that, you're goingto price that into your
opportunity.
If we're just looking at doing a
mortgage, all you're looking at isthe spread on whatever interest
rate you're going to be providingon the mortgage.
Now, if we're bringing in FordExchange, for example, or if the
(19:47):
person has private banking orwealth management, all of those
things, we really have improved alot in terms of looking at how all
those areas drive revenue for thebank.
And at the end of the day, that'sgoing to drive down your pricing
on whatever product you're lookingfor.
I think I've had this conversationfour times today where you think
everyone knows what you know, butthen you tell people and nobody
knows.
So in the real estate space, we've
had legislation coming down everyweek.
(20:09):
It feels like something changing,interest rates, city, what this
municipality is doing.
As an agent, I'm in this every
day, so I feel like I know allthese things and they're just kind
of getting boring me telling it.
But then I have client after
client just has absolutely no ideawhat's happened and all these
rules.
So I think for you guys in the
mortgage and lending space,something like this, this is mind
blowing to Okay.
No, thank you for putting that
(20:30):
out.
Yeah.
It's a topic of conversation.
Like I have in my call with
clients and usually I get asimilar response.
Like, well, this seems annoying.
Like, why do I have to set up a
bank account there?But it's purely a business funnel
for lenders to go, okay, if we'regoing to give you money, we want
to try and, well, it makes sensenow that they've changed more you
bring to the table, the betteroffer you can drive.
(20:51):
Yeah.
All right.
You somewhere.
So I feel like the narrative is
kind of like, oh, these poorbanks, you know, the government's
come out with these changes andnow you have to stack your capital
a little bit thicker and all thisstuff.
For me, I'm like, I'm starting tofeel a little empathetic, but then
there's like, you know, lendersare making trillions of dollars.
So do they really need to likehave such a buffer?
Like what is the risk that theCanadian banking system is just
(21:13):
going to Yeah.
So, I mean, the Canadian banking
system is pretty sound, like.
Yeah.
I So, the mean, Canadian bankingsystem is pretty sound, like
internationally regarded to bequite up there.
So, the reason they do this andhave the banks hold this equity
relative to whatever they've lentout is to make sure that, you
know, when loans start goingsideways and if there's write-offs
that have to occur, the bank needsto be able to withstand those
(21:33):
losses and ensure that it doesn'tcollapse.
So usually we see these additionalrules come out on the heels of
financial crisis.
So this one might've been in part
relating to the Silicon Valleybank, but we don't want to ever
push it that close.
And so as the loan loss provisions
go up, they really just want tomake sure they're planning it
pretty safe.
So, I mean, it's a very
complicated metric.
There's a whole lot that goes into
those rules and regulations.
(21:54):
I've only kind of done a high
level research to try andunderstand what I was seeing on
the banking front.
Like, why are we seeing cost of
capital go up internally?And so, yeah, I think there's a
lot of buffer within the Canadianbanking system, but you don't want
to risk it too much.
So is our system in a good spot
because of these kinds ofregulations, you know, like, or is
it just because the banks are justreally good people and they're
(22:14):
homeless?There are some pretty tight
regulations out there.
So there's like a lot of bandwidth
for the banks to absorb quite abit of defaulting loans.
Like I just thought about from youand you're like, the banks are
hurting, but they have to do allthis.
But it's like, the reason whywe're in a good position is
because of these.
Oh, thank you, banks.
I'll send out my later.
It's funny how regulations still
change in the banking system.
(22:36):
It seems like such a simple kind
of black and white economicsystem, and it's been around
forever.
How much more do we need to
change?But bear in mind, we haven't
really seen all that muchturbulence yet, right?
Like we're kind of waiting for theshoe to drop.
Like if rates don't start comingdown, you know, maybe we'll start
feeling that pain.
Obviously people are already
feeling that pain.
I heard on the news this morning
that mortgage defaults areincreasing, but like you would
(22:57):
assume that that's going to happenwhen you've got the Bank of Canada
overnight rate at 5% for as longas it has been.
So I guess it's been interestingto see the interest rate forecast.
Everyone's expecting these cuts tohappen, but it keeps getting
bumped out and bumped out becauseI was looking at what our forecast
was in January and we were like,undoubtedly, it's going to happen
(23:18):
in Q2.
And now it's like, ah, I think
it's going to be Q3 now.
And so maybe it's only going to be
75 basis points in 2024.
They're still expecting another
percent in 2025.
But it's definitely like getting a
little dovish on the cuts.
Yeah.
I guess what's your stance?Like I know Matt and I are pretty
optimistic of the Kelowna marketin general.
But are you like the world isgoing to end or things are going
(23:40):
to be OK?I think we live in a little bubble
here in the Okanagan.
You know, there's such population
growth that's driving everything.
You know, so much of what we see
on the commercial bankingportfolio is the support of real
estate development, whether you'vegot subtrades and whatnot.
And that's just been ticking alongfamously for the last little
while.
So we really haven't seen too many
cracks in the portfolio.
Hopefully that continues.
I mean, in my talks withdevelopers and the subtrades,
(24:01):
everybody's still doing prettywell for 2024.
Maybe you start to see projectscurtail end of this year, 2025,
maybe that's where the gap startscoming in.
But everybody seems to be doingwell for the time being.
And population growth, really, Ithink it's got to be the biggest
driver.
That Canada, obviously, GDP is
growing primarily from thatpopulation growth.
And then you see that even more soin this amazing place.
Yeah, I mean, we've spoken aboutthis before.
(24:22):
It's like, as a developer, would Iwant to be developing in BC right
now with provincial legislationthat's been coming out?
There's a lot of volatility fromit.
But like you said, said the safetynets in the population like and
how amazing it is here well yeahyeah and the we in this building
and then you get to hang out withmath that's right oh and i have a
party man yeah so that is uh yeahyeah a family house is worth it
(24:43):
just for that you said you don'tthink the shoe has dropped yet on
the interest that interesting.
Well, I mean, in a 2023, we're
thinking that rates were comingkind of Q1 2024.
And now, I mean, the Bank ofCanada's got their next
announcement tomorrow, allindications.
It's a holding pattern, reallylooking for what kind of
additional commentary they provideon that.
But it's really going to be amatter of, you know, is it Q2 or
(25:03):
is it Q3?And they're really concerned about
giving too much of an indicationthat rates are going to start
coming down because then it'sgoing to be that flood in the
market.
You know, the amount of people
that are kind of sitting on thesidelines waiting to make a move
on real estate is prettystaggering.
So we'll see.
It's though.
Like to me, the floodgates havekind of already opened early for
(25:24):
spring market like we're recordingthis early march and this will be
out a little bit later but likeit's been busy fixed rates have
just steadily been bumping downyou know like you can get an
insured mortgage for less thanfive percent now people are
comfortable with that a lot moreactivity so yeah i agree like as
soon as we get that first rate cutand there's confidence it's gonna
(25:46):
be the clouds have lifted then doyou think they're gonna give a
rate cut and then the next onethey're gonna bump it back up
again and just be gotcha yeah ifeel like they don't want to over
correct here and it's so hard idon't envy their position because
you know you're looking like sofar out yeah the lens that they're
looking through it's it is kind ofnice though to be in a position
(26:10):
where like if things start to sinkthere is a lever to pull where
they could just drop the ratesright so it's kind of nice to have
that instead of just the rates atrock bottom then she hits the fan
so what do you do now you know solike i feel like that's a bit of a
yeah can you give us a little bitof rundown on some terminology?
Like talk a lot about cap ratesand commercial.
(26:32):
Like if somebody wants to getapproved for a commercial
mortgage, say it's an investmentproperty, multifamily or
commercial office space, and theycome to your office and say, Hey,
Will, give me some money.
What are the requirements?
Yeah.
Great question.
So I would say in the currentenvironment that we're in, great
So I would say in the currentenvironment that we're
loan-to-value is kind of out ofthe So the amount of financing
that you get Yeah, relative toquestion.
(26:53):
the value of the it doesn't eventhe biggest in, thing we're
looking for is the debt servicingquestion.
ratio.
property, really, So whatever your
net operating income is, cash flowfrom the property less any
operating expenses needs to betypically at 1.25 to 1 of whatever
your debt obligations are.
So if you're going to a chartered
bank, you're going to have to havesome form of a buffer in there.
So that's typically how we'relooking at it.
(27:14):
So having looked at a fair amountof commercial and income producing
properties in the Okanagan here,right now, say you're borrowing at
6% financing, for example, you'relike 45% loan to value.
So you're going to get 45%financing of the purchase price.
Now, that I think has been in partwhy we've seen a bit of less
action in that space.
The sellers aren't really willing
to give things up for a discountright now, like where are you
(27:37):
going to deploy your capital?And the buyers are having to come
up with these massive equitycontributions in order to get
these deals off the line.
Now, you may be able to go to
other lenders out there that don'tcare about cashflow as much, but
amongst the big five, you're goingto need to be able to cover those
debt obligations with a buffer ontop of that.
And so there was so much actiontwo years ago when rates were
maybe 3%.
Now there's a lot less happening
(27:59):
unless maybe there's ulteriormotives for a property.
Could be income producing for themoment.
Maybe you've got aspirations todevelop that.
In those situations where you cansee the value add down the line,
maybe people are willing to make amove in those cases.
So would it have to be like anexperienced developer to buy
something like that to getfavorable?
Well, so if you're looking at itfrom a traditional commercial
banking perspective, in terms ofhow much money can we give you for
that I'm really only going to lookat it based on what the leases
(28:22):
support in rental revenue.
If you're looking at it from a
development perspective, mostlikely, depending on the dollar
value, you're probably going tohave to talk to a credit union.
But I mean, it can take a littlewhile to get those plans in place.
So maybe it is you're financingwith a chartered bank at the
get-go, get those permits andwhatnot.
Down the line, the credit unioncan look at financing the Not to
(29:06):
put you on the spot here, but howdoes a bank look at something like
a vendor financing on projects?It seems like a lot of the deals
have some sort of creativefinancing Yeah.
I mean, I would say right now withthe tricky landscape and the
divide between buyers and sellerson the commercial side, like those
creative aspects to a deal, it'skind of the differentiating factor
to get things over the line.
Yeah.
It would probably need to be dealspecific.
I can't say in my experience doingany real estate financing, there
has been a vendor note behind thebank.
We don't typically love that.
I mean, the issue there is whether
it's interest accruing andamortizing, then you're going to
have to consider how is this loangoing to get're fully behind the
(29:31):
bank on this, doesn't matter.
Then that could really probably
help you get in the deal acrossthe line.
The bank would have to becomfortable with that.
But if there's any element of debtrepayment, I mean, the biggest
issue you're facing in today'senvironment is how do I get this
thing to debt service at thehigher interest rate environment?
(29:52):
Because we haven't really seenrents booming like we have on the
capital value appreciation.
Now, how that pans out over the
next 12 to 24 months in thishigher interest rate environment,
maybe we start seeing some ofthese properties that can't quite
debt service at the higher ratescoming on the market.
There just hasn't been a whole lotof transactions taking place from
what seen.
Yeah.
Like it's pretty tough to have avendor take back behind, like in
(30:14):
second position, like to make upfor that equity you need fine.
But then if you're debt servicingit, like unless the vendor take
backs at like 1% on a 50 year AMand the payment's so small that
the lender's like, oh, cool.
It doesn't actually like they can
afford that in their debt serviceratios.
You know, I think when you getinto that larger landscape, yeah,
(30:36):
it kind of has to play a role.
The funny thing you mentioned
there is like you guys qualifymostly on that cashflow, that debt
service ratio.
And I find a lot of people trying
to get into that space, whetherit's a multifamily or office
space, they're almost upset.
Like, Oh my God, like, just give
me the money, you know, like, butit's such a safety net to go
through the due diligence withcommercial lenders and appraisers
(30:59):
and everyone that's doing theirjob.
Because like, how are you going tofloat a $4,000 net loss every
month?You know, like people don't really
look at it that way on the cashflow.
They look at, you know, theupside.
So I think it is like superimportant that banks are doing
their job in that regard.
I would add on that too, from a
commercial banking perspective,when we're looking at these income
producing properties, it's reallyon the credit merit of the
property itself.
Like we're not considering what
(31:20):
your personal net income is tofloat any gaps there.
It's really, can this property onits own support the mortgage
that's being requested?So that you sometimes see that bit
of a difference on the smallbusiness side, perhaps where they
take into consideration thepersonal credit worthiness a
little bit more, but yeah, incommercial, it's pretty much on
the merit of the I mean, you justmentioned the rent, where rents
(31:41):
are, do you feel commercial spaceright now is fairly equal for the
rental income compared toresidential rent?
And the reason I'm asking isbecause so obviously in BC, we
have residential rent controltenancy act where Alberta, we
don't.
Now, Alberta, we see home prices
and I know like we're completelydifferent provinces with different
(32:04):
resources and different buyers,but like it works pretty well
there.
If we just remove that completely
in BC, do you think it would stillwork?
And I mean, it does work on thecommercial side.
There is no rent control.
So as as a like if you're looking
at a multifamily building, is itnot just way more risky in BC
because you know that you'rehandcuffed by rent increase?
(32:25):
Yeah, I would say I'm not quite asfamiliar on the multifamily where
cap rates are right now.
I'm a little bit out of touch on
that.
But what I would say is from a
risk perspective, on theresidential side, we find a little
bit more comfort in the rentalmarket.
Whereas on commercial, maybe youfeel the ebbs and flows a little
bit harder.
I mean, in Kelowna specifically,
vacancy on the residential sidehas been so low for so long.
(32:47):
So I think that de-risks theproperty in a sense.
Whereas, you know, if you've gotcommercial property and there's
like one or two tenants, if one ofthose tenants leave, that's a big
deal.
So that can carry a little bit
more risk.
Whereas if you're in a
multifamily, your risk is a littlebit more dispersed because there's
so many tenants in the Yeah.
And I think you see that a lot of
times on the cap rate too.
(33:09):
Like people are more comfortable.
Like in Vancouver, taking a threecap on a multifamily is great.
You're not making any money, butthere's a lot of security and the
vacancy being zero.
Big time.
I was wondering that when you weretalking about loaning, like how it
feels like Vancouver's been inthat space for a long time, like
10 years.
In The and a half cap?
Yeah.
Like the low rental rates for how
much a building costs.
Yeah, I mean, you see it also not
just on the multifamily, but inthe industrial commercial side as
(33:30):
well.
It's insane.
Like, I think I was looking at onein North Vancouver and it was
three and a half, four cap onindustrial property.
And so it's just the amount ofequity to get those deals done.
I guess it's been that way for areally long time, whereas we're
catching up.
Yeah, it is kind of mind boggling.
So is So is it different lendingpractices here or there, or are
they just coming up with more downYeah, pretty much more money in.
(33:55):
I think for that, it's moreinstitutional buyers as well,
right?You're looking at people that are
looking to park their moneyknowing it's like, I don't want to
say it's like stress-free, butthey're like, hey, I've got $50
million, whether it's from apension fund that they're
facilitating or something.
Well, they're just like, I need to
park it here.
I'm going to earn a small
percentage, but there's going tobe great capital appreciation.
(34:17):
There's very minimal risk where ifyou're trying to build up your
portfolio as a smaller investor,you're going to go to like
Northern BC, Northern Creston.
Yeah.
That's exactly what I said.
I Yeah.
mean, Will geez, wouldn NorthernNorthern BC, Creston.
that's Yeah, exactly what I said.
Yeah.
I geez, mean, Will wouldn't evenlend in Creston.
(34:38):
Come on, I I had to It makes totalyou know, sense, do you get into
something like that?A lot of money.
Yeah.
Yeah.
It begs the question, like whywould you park your money there if
you can make better returnelsewhere?
Like, yeah, there's a little bitmore risk to it, but it's the same
as a bank, I guess.
Like banks could go out and deploy
money at 12%, but do they want theheadache of defaults and chasing
(35:00):
that asset back down?I think seen is like, unless
you're institutional investor,like you mentioned, like the
consolidation roll-up play,whereas you've accumulated a
portfolio, you leverage them up,buy one, pay that down, and then
just keep rolling it up to getbigger and bigger.
So, I mean, that's the onlyscenario that I've seen where
people can pull that off becauseit's hard to understand that
(35:21):
return on investment when you'rehaving to put so much equity in.
But if you've done it for so longand you're so familiar with the
space, you understand what theupside is, whether it's rental
appreciation and capitalappreciation, if the assets are
paying for themselves, then maybethat's how you wrap your it.
Yeah.
Well, I guess the passive income
part too is a key point becausethat's taxed higher.
It's 52.2% or whatever.
So you'd rather run the
(35:42):
appreciation up, which you woulddo in Vancouver, do a refi where
there's no taxable event, deployit on another asset where you
don't really need the incomebecause you're going to be taxed
at it at such a higher rate.
In terms of Kelowna then, you're
transitioning more into thecommercial real estate agent role.
So you're going to be out workingwith similar clients and you add
like a nice value add piece bybeing able to run the numbers and
(36:02):
underwrite it.
What do you like in the Kelowna
scene right now?Like if you're transitioning,
what's kind of the best bang foryour buck that you see?
Take off the banker hat because Iknow you're just going to like be
ultra conservative.
But if you add a few million bucks
to deploy on some commercial realestate, where are you pointing
your clients?it. I mean, I think this is
probably the popular consensus,but industrial is very hot right
now.
And I think there's such a limited
(36:22):
supply available.
So we're seeing people maybe
expand geographically.
But if you can pick up some good
industrial real estate in Kelownaproper, you're, I think, going to
do very well over the long term.
Real estate development as well,
population growth is such a hugedriver to this economy.
And I think the secret's out, somany people are moving here and
not leaving.
So I think that will continue to
be really a prevalent force in howmuch building we see.
(36:43):
So I think land that you candevelop, there's going to be a ton
of upside in the long term.
I mean, driving around now, you
obviously see how many cranes areabout and how many multifamily
properties are being constructed.
So it begs the question, are we
potentially overbuilding?Who knows?
Over the long term, I thinkthere's going to certainly be
incredible demand for peoplewanting to move mean, question to
(37:04):
both you guys, are they building alot of industrial?
I haven't really seen much, likemaybe five years five years ago.
Up by the airport?Yeah, by the airport, maybe the
big ticket item.
But once that's done, I mean,
maybe Kelowna Springs, the golfcourse, who knows what'll happen
there.
I'm just, like you mentioned,
there's thousands of residentialunits coming on like condos.
I know like there's a shortage,but that seems like it will be
(37:26):
saturated.
And most of those people need the
industrial space.
I just don't know if the
industrial space will really keepup to it.
Like lease rates are pretty highfor industrial.
They've been on fire, but again, Ijust like, don't understand where
the supply could come from toreally curtail that.
I'm almost done my garage, so I'mhappy to lease that out at $50 a
(37:47):
square foot.
I I like it.
I think I might have a couple oftakers for it.
Yeah, Let's do it.
We'll kind of segue into our
wrap-up questions, which I mean,the first question is essentially
what we were just talking about.
But if you could buy one property
in the Okanagan in the next 12months, what would it be?
Yeah, I think, you know, if youlook at smaller markets like a
Creston, you can drivesignificantly higher cap rates.
(38:08):
So there was a period of time thatI was looking potentially at some
other investment properties in thesmaller, like one or two bedroom
condos.
Maybe it's a couple of years I
think old.
you can wrap your head around some
okay cashflow, like with or twobedroom maybe condos, it's a
couple of years I think old.
you can wrap your head around some
(38:30):
okay cashflow, like with themarket where it's at right now.
I don't know if you're finding awhole lot of opportunities where
it is cash flowing with 20% in.
So anywhere close to that, I think
the longer term would look prettygood.
And if you can have it almostpaying for itself, I think you're
well.
Yeah.
What's the best thing you've everon, big or small?
Well, I had a stint where I wasworking for the bank in Prince
(38:54):
George.
And while I was there, I bought a
fourplex with a friend of mine whowas also in banking.
And at the time, you know, I thinkwe were getting like 800 bucks a
door and the numbers still made somuch sense, which was kind of
good.
I was like, what are we missing
something here?This is our first ever kind of
bigger purchase.
And then we bought it and
(39:14):
everything that could have gonewrong in the first six months went
wrong.
It was an absolute nightmare.
One of the tenants just like, Ohyeah, I still have nightmares
about it.
But anyways, since then rents are
probably up like 70% and therental market in Prince George has
really gotten quite strong so if Icould buy that thing five times
over even with the first sixmonths I had to go through I would
(39:38):
so I love that you said thatbecause we've talked about this a
bunch in the show is that even ifyou buy the worst possible time if
you look back in five years orhowever long you've almost never
regret it totally right so likeyeah I think with everything going
on right now we're time that's whymatt doesn't ask for a google
review for five years clients overthe last two years have been so
(40:01):
pissed off with them just waitjust i promise in five years it'll
be a five star yeah yeah it istrue though like i mean you can
get a bit emotional but like mostof those problems you forget
about, you know?Yeah.
I find that that equation, I mean,I can't remember how you managed
your Creston one, but it's likehow that consumes your time and
whether you're willing to paysomeone for that.
(40:21):
Because there can be a lot ofheadaches that go along with
running a multifamily.
Some tenants are a lot better than
others and kind of how you fill upyour cup with like what you're
going to allocate your time to isreally important question to ask
yourself when you're getting intothose I think like setting the
expectation is very important too,because a lot of people, you know,
over the last 10, 20 years orsomething, it's been, Hey, passive
(40:44):
income, real estate, you buy andhold.
It's really simple, but really youare buying a job.
Even if you outsource it tomanagers and contractors like you
still have to be involved but ifyou calculate the hourly rate it's
still worth it yeah very much sookay what is your favorite charity
and how do you give i've alwaysbeen very involved in sports
throughout my life it's reallyopened a lot of doors from
(41:04):
relationship perspective andcharacter traits that i've picked
up And so the Special Olympics andmotion ball are something that I'm
pretty passionate about to see theimpact that sports can have on the
Special Olympians.
I've got a good friend whose son
has autism and just seeing howskiing has changed his life and
the doors that it opens and thedevelopment that he's gone through
from being involved in that.
It's something I'm passionate
about.
Yeah, that's awesome.
Love it.
How can Taylor or I or the sir
help you?Yeah, well, making the leap of
(41:25):
faith, getting at a commercialbank and getting into commercial
real estate.
So partnering with a great
brokerage here in town, HMCommercial, and I think their
values align really well withmine.
There's a ton I don't know aboutreal estate, so it's going to be a
big learning curve for me.
But really, the mentorship that
those guys can provide.
I'm going to really be looking to
build out my network over the nextyear or so.
(41:45):
So any sale leasing opportunities,primarily going to be focusing on
industrial and real estatedevelopment.
And if you've got any questions onhow to finance things, always
happy to field those calls, reallyhoping to leverage my background
in commercial banking into my realestate practice.
So just yeah, hoping to get out inin commercial banking into my real
estate practice.
much as I can.
I love that.
Yeah.
I mean, there's a lot of power tohave an agent that knows how to
(42:06):
finance those kinds of properties.
So sweet.
Yeah.
We'll pass on all our listeners
your way.
You better get ready, man.
That phone's going to ring.
All right.
Well, thank you guys so much forhaving me today.
It was awesome to be part of theshow.
All Yeah.
right.
thank Well, you guys so much forme It was today.
awesome to be part of the show.
(42:28):
Yeah.
Appreciate Yeah.
it.
back to the Kelowna Real EstatePodcast.
I'm mortgage broker host, TaylorAtkinson.
And I am your real estate agenthost, Matt Glenn.
What's going on, Taylor?Yeah, having a pretty good, you
know, Good Friday, actually.
So we're recording this intro, but
yeah.
Easter Easter weekend is here, so
everyone gets a bit of a break.
Yeah, Great Friday.
My son was born last year on GoodFriday, so I renamed it to Great
(00:21):
Friday.
Nice.
Yeah, the last year was april 7thso i've got a couple of weeks
still or 10 days or so yeah yeahno i'm looking forward to that
birthday party yeah good yeahwe've had two one-year-old
birthday parties in a row when youhave a one-year-old you'll have
lots of friends that are alsoone-year-olds so you go to a lot
of baby parties and it's awesomeat least i'm looking forward to
that birthday party yeah goodshort you know it's like a
two-hour window because everyonehas a nap schedule so it's like
yeah they're short there's shortthere's drinks there's cake and
(00:42):
you get out of there yeah it'sactually okay well what's going on
i mean it seems like every daythere's legislation changes and
new bills coming out so what'shappening yeah so the renter's
bill of rights proposed so thiswill allow the renters to use
their rental payments that theymake as their credit score when
they're looking for a mortgage toeventually get into the housing
market.
Landlords will have to disclose
(01:02):
what units were previously rentedfor.
And a standard lease agreementnationwide.
Yeah, standard lease agreement.
But like, BC has a pretty strong
lease, so like I think ifanything, it's going to stay the
same, if not get a little weaker.
Can't imagine it gets any weaker,
so it's probably going to stayvery similar.
I mean...
I'm okay, I think, with the
standard lease agreement acrossthe think the standard lease
agreement's fine as long as it'sdecent and protects both parties
(01:24):
instead of in BC where it justreally protects the tenant.
I mean, if I was in Alberta, I'dprobably be pretty upset because
the lease agreement- Well, that'swhat I'm saying.
Are they going to make the BC onestronger?
There's absolutely no way thatAlberta is going to love that.
Well, I mean, is also just astandard lease agreement, but they
don't have rent control?Or are they talking about like the
same rent control across Canada aswell?
(01:45):
Yeah, I guess we have theResidential Tenancy Act in BC.
So it would just be the leaseagreement, not the whole act,
obviously, across the country.
Yeah.
But I mean, the lease agreementfor BC we get from the tenancy
branch branch anyways, but yeah,we do not oppose to the standard
lease.
I'm not opposed to the credit
score.
I think that's actually a decent
idea.
They've been talking about that
one time.
My thought when I heard the credit
(02:06):
score thing was like, man, itdoesn't, this is more leverage for
the landlord.
Like, listen, don't ruin my place
or I'm going to give you aterrible credit score.
But then you were saying that it'sautomatic reporting from your
digital payments or from yourelectronic payments.
I that's how it's supposed to be.
But I mean, policing any of this
is going to be like so time Evenme just thinking about this is
crazy.
How much money is it going to cost
just to push paper to get thisYeah.
(02:27):
And then disclosing rent for theprevious history really doesn't
achieve anything.
It doesn't help anyone negotiate.
I mean, none of this really makesa ton of sense.
Again, to me, it's like they'regrasping at low hanging fruit
media straw just to act likethey're doing something.
But the resources that they'd bespending on this is just insane.
I would love to see the budget,the man hours allocated to it,
(02:50):
because I feel they could probablybuild a hundred houses instead.
Way more than a hundred.
A hundred houses a day.
Yeah.
It just, I don't know.
It's chaos.
We had an episode, what, about a
month and a half ago, NicoleWatson came on, CPA, accountant.
We spoke about- Yeah.
I saw this.
i was thinking about her yeah beartrust agreement which like put
accountants under a ton of stressover the last couple months yeah a
(03:13):
ton of stress over the last couplemonths put everyone under a ton of
stress like listen i was callingclients like you co-signed on this
one you should call youraccountant yeah and everyone was
working on this until a few daysago yeah and now they've just like
decided to change it again wellbecause they cause they realized
it was insane.
Like I don't even know how many
thousands of houses would not havereported that they co-signed or
that they were, had a 1% name on atitle.
(03:35):
They had no idea.
I never thought about it.
And now they got these tax rules.
was also a slight revision on the
short-term rental legislation andthey kind of broke down.
Like if you were operating beforeDecember 2023, and the building
has a front desk and like a coupleother little requirements, then it
potentially could continue tooperate in the future.
And like, I think that's great.
That's positive.
But stop changing your mind.
Like, I can't keep up.
I Is that supposed to come in May1st?
(03:58):
Like that whole thing?So it is.
I guess they can't change theirmind now.
Yeah.
Yeah.
I appreciate that step.
But I think they're opening up a
can of worms like they're givingthemselves you know more thread to
pull on and then what was thatthing beside the ramada they're
gonna build that little yeah forshort term renting oh yeah what
yeah same mark anthony group whichis great like a 12 story kind of
(04:20):
boutique hotel well well somethinghonestly we've talked about this
before something needs to happenwith that site sure my god i think
originally it was like a four tosix story kind of wine tasting
venue, like, you know, a greatlittle spot.
And I would probably do the samething if I was a developer and I
knew that short term.
But why are we like taking those
units off and then building?It's just, it's tough, man.
I'm exhausted.
Yeah.
But yeah, to focus on some morepositive news this week, Century
(04:43):
21, who sponsors this show andevery show moving forward, threw
on a great award ceremony at MountBushry Winery.
My My God, they throw a party.
Yeah.
It is awesome.
Yeah.
Yeah.
Where were we?
Mount Bushry at the ModestButcher?
Yeah.
I guess the Modest Butcher was
upstairs, but we had a fantasticparty.
Wine was flowing all night.
We gave out our awards.
And like, I've played hockey mywhole life.
I have a lot of trophies.
(05:04):
I have never got trophies like
these trophies, man.
These are quality trophies.
They like have some girth.
They have some weight to them for
the Centurion Awards.
So that Yeah.
a fun night.
Everyone, I think, had a great
time there.
Yeah.
Judging by social media after,everyone had a great time.
to you and my wife, Emily.
You guys both did a fantastic job
(05:24):
last year and got someacknowledgement for it.
Now you're making me kind ofthink, though, like I played
sports my whole life, too.
And I think I got some T-shirts to
show for Yeah.
Honestly, Emily and I are at the
best brokerage there's no doubtabout it that night i actually sat
back with my wife we got our spotsright by the bar so it was perfect
the food just kept on coming to usand also everyone had to get
(05:47):
drinks so we just got to talk toabsolutely everybody in the place
over and over again and i just wasthinking like we have something
good going on at this brokerageand i love it if you're looking
for a change or you want some morehelp like give max a call or give
me a call like Like I can't sayenough about it.
(06:08):
I just love it.
Or if you just want like a good
party and wine and yeah.
Yeah.
Heavy award.
award.
So going into show, well, today Iguess we brought on Will Piggott.
He's a friend of mine.
I was introduced to commercial
mortgage financing broker.
He used to work for one of the
very large banks, a of creativedeals.
He's recently changing over tocommercial real estate agent.
So we're kind of in thistransition period, but had some
great insight on some regulationchanges that came in from the
lender perspective and why they'vekind of tightened their asset
portfolio a little bit yeah butthings that were like not everyone
(06:31):
in the public would know it but ithas major implications for like
the housing market and you justit's one of those things that
happens you don't you would neverknow until you talk to a guy like
will yeah it was an interestingepisode Obviously, it was
definitely in your guys' lane as alending more, but I loved it.
(06:54):
Yeah.
And I it goes hand in hand.
And what we've said before on theshow is like, as the end consumer,
you're never going to know all ofthis information, even as like a
mortgage broker.
I'm not going to know all the
rules of a real estate agent andvice versa.
So you just really got to workwith people you trust and rely on
(07:17):
them to have your best And it wasinterest.
really fun to so, chat yeah, topeople you trust and rely on them
to have your best interest.
And so, yeah, it was really fun to
chat to about that kind of stuff.
Amen.
Like, honestly, it was like, Ijust did not know.
It was like I was getting smackedin the side of the face with
information.
You kind of think as an agent,
like, I know what's going on withmortgage broking.
Obviously, you kind of know thebasics.
(07:37):
But then you have a conversationlike this.
And it's like, yeah, this is whyyou have professionals.
No, and just in general, I mean,he's an awesome guy.
He's out ski touring and livinghis best life.
So yeah.
If you want to talk to him about
some commercial financing stuffand or commercial purchases or
selling or whatever, yeah.
Reach out to him.
He's, he's a good guy to chat toand have on your contact list.
So enjoy the show, guys.
Happy Easter.
Yeah.
And congratulations for your work.
again, Matt, thanks for coming onthe Hey, man.
Will, show, welcome Yeah, to theshow.
Thanks for having gents.
me, This is awesome.
Yeah, so how we like to start ourshow is just kind of what does
(08:00):
your perfect Friday look like?This is a Kelowna real estate
orientated show.
So a bit of business and then
leading into the weekend, havingYeah, totally.
So I usually start my day at 630,try and get to the gym.
I find a little exercise reallystarting the day with purpose
really makes a big impact on myfocus for the day.
Usually try and skip breakfast.
(08:20):
I'm kind of a half-hearted
intermittent faster.
I don't let it control my life,
but if I can make it till noonwith a cup of coffee without
eating and it helps me, I don'tfind the energy impact is too
significant.
So my role is kind of a mix of
(08:43):
business development and creditunderwriting.
So if I can mix in both within aday, I'm usually feeling pretty
good.
So maybe the morning's hammering
out some client meetings or somecold calls in the doing afternoon,
a usually underwriting, feelingpretty So maybe the morning's
good.
hammering out some client meetings
or some cold calls.
In the afternoon, underwriting,
doing a little bit of analysis.
And then in the summertime, if I'm
on the golf course at 3.30 with aclient, that's usually a nice way
to mix in some business withpleasure.
(09:04):
I haven't quite figured that outfor the winter months.
Got to find some prospects thatlove skiing as much as I do.
Get the sim.
Yeah, that's the 2025.
That's on my hit list.
Well, I mean, i'm a client that
loves to ski hey man we gotta makethat happen i see your instagram
stories you're out there shreddingpowder all the time and you know
here i am behind a just please ilove the business golf idea
(09:24):
honestly i'm trying to embracethat this oh it's the best way to
get to know someone kind of at adeeper level you know conversation
evolves so much in four hours andyou can really see how somebody
operates on the golf course,whether they're a putter thrower
or just like calm, cool, collectedI course, doing a presentation at
my office last year, like probablyaround this time, probably in the
spring.
I was like, my goal, I want to go
golfing like once a week withclients or random people and just
meet people on the golf course andknow them.
And I was like, and I have a babydue in a couple of weeks, just
(09:46):
immediate laughter.
What's so funny?
What's so funny about this?and it turns out the whole year
i've been golfing like two timesand they're both work events so
like didn't get out once so butthis year this year is my year
let's make it yeah life gets lessbusy as your kids get older for
sure i know okay well backbusiness, because some of us work
around here, not like you two.
So you work for a major Canadian
Institute for Lending on thecommercial side of things.
(10:08):
What have you kind of seen in thelandscape over the past year to
two years?Like obviously, you know, Bank of
Canada has come out and, you know,Matt and I are more focused on the
residential side of things, butthe commercial point is very
important because a lot of theseprojects are being facilitated
from commercial lenders or evensmall business owners supporting
the economy.
So what's been your guys'
position?How's your portfolio look?
(10:28):
Are you guys deploying money inthese projects?
Yeah.
So it's been, I'd say, a little
bit slower in the last couplemonths, for sure.
But in part, the rising interestrates have a lot of people on the
sidelines.
So maybe you're seeing certain
opportunities that are slightlymore marginal, or it's just harder
to debt service at the higherborrowing costs.
So that's definitely been a littlebit of a pullback on transactions
taking place because people arekind of waiting to see when are
(10:49):
interest rates going to fall andthen maybe make a move then.
But it's been a pretty dynamicyear, I'd say, for 12 to 18 months
in the commercial banking side ofthings.
There have been some prettysignificant regulatory changes
that have shifted how the banksthink about doing business.
So Basel is essentially like aninternational set of rules that
all the banks have to adhere to.
And beyond that, you've got OSFI,
(11:10):
who is the Canadian bankingregulator.
So they can make some rules in andabove that.
But on the heels of the financialcrisis, you'll see these
enhancements to the Basel rules.
So in 2023, there was a new set of
rules that came out.
And the biggest impact that we
felt from that is really thecapital allocation that the banks
(11:30):
have to have.
So there was a 2% increase in the
common equity or capital equitycomponent that the bank has to
hold for every risk-weighted assetthat they have.
So 2% increase on the trillionsthat the bank have out in loans is
a pretty significant change.
So essentially, within the course
of years, billions of dollars thatthe banks have to hold more in
equity for all the money thatthey've already lent out.
So with that, we've really seen abig shift in capital allocation
(11:53):
being a focus for the bank.
So you've always got the credit
component whenever you're lookingto lend out money.
Now there's the business element,where are we deploying the
capital?Does this make sense for the bank
from a financial perspective?This is super interesting.
This is something that most peoplewouldn't know of a rule that
changed.
Yeah.
It was kind of behind the scenesand even somebody working in the
(12:16):
banking space, it's kind of beenfluid in how this comes out.
So where we've seen the biggestimpact of that is return on it's
very important metric that thebanks look at.
Whenever we're looking to do aloan, that's basically what we
look at.
How much equity are we setting
aside?What's our return on that amount
of money?So when you're having to hold,
(12:36):
let's say, 2% more money than youwere before, your return on equity
has already been impacted.
So we felt that in our internal
cost of fund across all the banks,you're basically seeing more of an
internal cost of funds for anydollar that you're lending out.
So not only the Bank of Canadahiking interest rates, are you
going to feel that obviouslyimmediately, but this is something
(12:58):
else that has been kind oftrickling out over the last year
or so.
And it's something that people are
still getting grasp of, but it'shad a pretty significant impact in
what we've seen over the last 12to 18 months.
So if So if that regulation comesout, just thinking about this,
they can't just get to 2% rightaway.
It probably takes a while.
Yeah.
So there's an implementationperiod in which that would be
(13:20):
required.
But as Canadian banking systems,
pretty sound.
So they bring out this rule,
everybody's already on side of it,but you want to make sure that
you've got quite a bit of wiggleroom.
So it's not like it was a materialimpact right out of the gate from,
oh no, we're not going to meetthese requirements.
Everybody was pretty much there,some more so than others, but
you're not going to be tiptoeinglike the minimum requirement.
(13:42):
You're going to want quite a bitof wiggle room.
So really a lot more attentionbeing paid to these risk-weighted
assets and where the capital isbeing deployed.
Interesting.
Would a way to recoup some of that
or build that buffer in, like justthat time of renewal, say somebody
has a mortgage product coming upfor renewal, you as the lender
would just say, our renewal know,X amount and it's quite a bit
(14:03):
higher than some of the otherlenders.
And then somebody's going toswitch their mortgage to a
different lender.
And then you recoup that capital
back or like.
that could be a scenario, you
know, where you're basicallysaying, hey, we need our return on
equity to be X. And this is wherewe feel comfortable renewing a
facility.
And if you're not there, like if
you got to take that businesselsewhere, that's just the way it
(14:23):
goes.
So yeah, we have seen it on the
residential space.
There is a lender that basically
it was just out of the space forthe last 12 months.
They've finally come back to themarket with like competitive
rates, which is nice to see.
But you do see that every three,
four or five months, differentlenders will have a more
aggressive rate and deploy thatcapital because they don't want
the cash just sitting there notmaking money.
(14:45):
Absolutely.
So you're really walking quite a
fine line.
And so you could see certain banks
that maybe have a better capitalstack, more capital to deploy.
And those banks can be a littlebit more aggressive on the rates
that they're able to providebecause they've got that money
that's sitting there, maybe notgenerating as much as it could.
So there maybe is a bit ofdisparity between some of the
banks right now with these changesthat have been coming out.
(15:07):
Man, I need to work on my capitalstack.
do you see in terms of like, whatdo banks like as a portfolio, like
to allocate the assets?Do they want a certain percentage
in residential, commercial,industrial, construction?
I guess, what's the least amountof risk with the best amount of
Yeah.
So, I mean, asset types, like the
flavor of the month can alwaysshift, right?
(15:27):
Like right now, office isobviously a bit of a tough space
to be in.
In Kelowna, you've got one
developer finishes a massiveproject.
Now you've got this a bit of atough space to be In in.
Kelowna, you've got one developerfinishes a massive project.
Now you've got this insane amountof supply that can completely skew
the market.
So I would say office is one
that's probably a bit tough.
But each asset that we're
(15:47):
evaluating is going to have itspros and cons.
So really understanding what's thetenant makeup.
You know, if it's residential,where is it located?
I wouldn't say that there's'sde-risked based on a certain type.
There's obviously so manyimportant characteristics.
But from a commercial perspective,looking at who is the landlord,
what's their experience, who'smanaging the property, the tenant
makes one of those leasesmaturing.
What is the risk that someone'sgoing to walk from their lease
within the middle of our term, andthen we're not going to know where
(16:09):
our loan's going to get paid backfrom?
Those are the key things that welook at when you're looking at the
income producing properties.
But I'd say the big thing for
banks right now is relationship.
Like we hear it so much across all
the banks.
Basically, we want everything that
you've got.
And so before maybe you would
benefit from having your eggsspread around, you know, maybe a
(16:32):
little bit over at bank A, alittle bit at bank B. Now there's
more value for the customers.
If you have all your eggs in one
basket, they can put more weighton all of the products that you're
taking and give you a better dealas a result of that.
I think that's been a shift thatwe've seen in the last 12 to 18
months.
As we look at things holistically.
That's really you a frontlineapproach in what we're looking at
for new taking, customers.
know, As we look Is as well?
(16:52):
It's residential as well.
So the funny thing with that is
like I have that conversationpretty frequently with clients
because I go, okay, here.
That That of me.
Yeah, I just pocketed the extraprofits.
So there's certain lenders that dolike a cash back promo, but to get
the cash back, like when we fundthe mortgage, you have to have
your mortgage payment coming outof their accounts.
(17:14):
You have to set up an account withthat lender.
Other lenders will provide abetter rate, you know, kind of
like a cash back, but it's asavings over the term.
And it's the same deal.
You have to sign up.
You have to have an account.
They're really trying to like claw
people in like, so who would knowthat one works for?
Yeah.
So it says it on our rate sheets.
It says, you know, these are thestipulations of the cash back, or
(17:36):
here's a standard rate.
If you do not want to bank with
this bank discounted rate, if youcome in and you set up an account
and you have a one-on-one meetingwith said lender, it's not like
life changing.
We're not talking like they're
going to give you a percent Well,yeah, we can talk.
Yeah.
It can be impactful though.
It's really trying to get awayfrom the single service product
(17:58):
offering.
Yeah.
That's been kind of the flavor.
And really trying to 12 months, 12
to 18 12 to 18 months, I'd say.
I think like, you know, I'm kind
of guessing where it's comingfrom.
And I think it's largely fromthese capital requirement changes
that the regulators have beenimposing.
Right.
Because then as a client, you're
going to hold other assets,investments, cash, et cetera,
there.
And that's going to help build up
(18:19):
their capital.
I mean, if you're taking a piece
of the bank's pie in terms of likeborrowing money from them, they
want to make sure that like ifwe're setting that aside for you,
what are the other products thatyou may be taking on rather than,
you know, certain banks maybe werereally going hard on just trying
to do as many mortgages as theycould.
And the thought being maybe we'llget the extra business that comes
(18:40):
from it.
Sometimes you do, sometimes you
don't.
And I think now with the fact that
capital allocation is getting sucha focus, like if you're not going
to bring us that other stuff,maybe we'll give you an offer, but
it's not going to be as good forour clients that have everything
with us.
That is interesting.
Yeah.
Sorry, I don't need to dwell on
this, but like, I feel like...
You can't get a cheaper rate
match.
This is something that you should
plan for in advance or can youjust change it at the time of
(19:03):
applying for a mortgage?Yeah.
Time of applying for the mortgage.
So like, you know, there's a
couple of major lenders who aresuper competitive in the
residential space, very equal typeof products.
And basically the requirement isfor one of them, you just have to
have an in-person meeting and setup an account before the date,
your mortgage funds.
And the other one, you have to
have an account set up and yourfirst mortgage payment being taken
from that account, like an autowithdrawal to get the cash back
(19:25):
incentive.
Yeah.
Maybe the relationship buildingaspect, it's not like you need to
bank there for five years, atleast on the residential side.
I'm sure commercial may differ.
Yeah.
I mean, if we are looking atsomething and we understand what
would come from that, you're goingto price that into your
opportunity.
If we're just looking at doing a
mortgage, all you're looking at isthe spread on whatever interest
rate you're going to be providingon the mortgage.
Now, if we're bringing in FordExchange, for example, or if the
(19:47):
person has private banking orwealth management, all of those
things, we really have improved alot in terms of looking at how all
those areas drive revenue for thebank.
And at the end of the day, that'sgoing to drive down your pricing
on whatever product you're lookingfor.
I think I've had this conversationfour times today where you think
everyone knows what you know, butthen you tell people and nobody
knows.
So in the real estate space, we've
had legislation coming down everyweek.
(20:09):
It feels like something changing,interest rates, city, what this
municipality is doing.
As an agent, I'm in this every
day, so I feel like I know allthese things and they're just kind
of getting boring me telling it.
But then I have client after
client just has absolutely no ideawhat's happened and all these
rules.
So I think for you guys in the
mortgage and lending space,something like this, this is mind
blowing to Okay.
No, thank you for putting that
(20:30):
out.
Yeah.
It's a topic of conversation.
Like I have in my call with
clients and usually I get asimilar response.
Like, well, this seems annoying.
Like, why do I have to set up a
bank account there?But it's purely a business funnel
for lenders to go, okay, if we'regoing to give you money, we want
to try and, well, it makes sensenow that they've changed more you
bring to the table, the betteroffer you can drive.
(20:51):
Yeah.
All right.
You somewhere.
So I feel like the narrative is
kind of like, oh, these poorbanks, you know, the government's
come out with these changes andnow you have to stack your capital
a little bit thicker and all thisstuff.
For me, I'm like, I'm starting tofeel a little empathetic, but then
there's like, you know, lendersare making trillions of dollars.
So do they really need to likehave such a buffer?
Like what is the risk that theCanadian banking system is just
(21:13):
going to Yeah.
So, I mean, the Canadian banking
system is pretty sound, like.
Yeah.
I So, the mean, Canadian bankingsystem is pretty sound, like
internationally regarded to bequite up there.
So, the reason they do this andhave the banks hold this equity
relative to whatever they've lentout is to make sure that, you
know, when loans start goingsideways and if there's write-offs
that have to occur, the bank needsto be able to withstand those
(21:33):
losses and ensure that it doesn'tcollapse.
So usually we see these additionalrules come out on the heels of
financial crisis.
So this one might've been in part
relating to the Silicon Valleybank, but we don't want to ever
push it that close.
And so as the loan loss provisions
go up, they really just want tomake sure they're planning it
pretty safe.
So, I mean, it's a very
complicated metric.
There's a whole lot that goes into
those rules and regulations.
(21:54):
I've only kind of done a high
level research to try andunderstand what I was seeing on
the banking front.
Like, why are we seeing cost of
capital go up internally?And so, yeah, I think there's a
lot of buffer within the Canadianbanking system, but you don't want
to risk it too much.
So is our system in a good spot
because of these kinds ofregulations, you know, like, or is
it just because the banks are justreally good people and they're
(22:14):
homeless?There are some pretty tight
regulations out there.
So there's like a lot of bandwidth
for the banks to absorb quite abit of defaulting loans.
Like I just thought about from youand you're like, the banks are
hurting, but they have to do allthis.
But it's like, the reason whywe're in a good position is
because of these.
Oh, thank you, banks.
I'll send out my later.
It's funny how regulations still
change in the banking system.
(22:36):
It seems like such a simple kind
of black and white economicsystem, and it's been around
forever.
How much more do we need to
change?But bear in mind, we haven't
really seen all that muchturbulence yet, right?
Like we're kind of waiting for theshoe to drop.
Like if rates don't start comingdown, you know, maybe we'll start
feeling that pain.
Obviously people are already
feeling that pain.
I heard on the news this morning
that mortgage defaults areincreasing, but like you would
(22:57):
assume that that's going to happenwhen you've got the Bank of Canada
overnight rate at 5% for as longas it has been.
So I guess it's been interestingto see the interest rate forecast.
Everyone's expecting these cuts tohappen, but it keeps getting
bumped out and bumped out becauseI was looking at what our forecast
was in January and we were like,undoubtedly, it's going to happen
(23:18):
in Q2.
And now it's like, ah, I think
it's going to be Q3 now.
And so maybe it's only going to be
75 basis points in 2024.
They're still expecting another
percent in 2025.
But it's definitely like getting a
little dovish on the cuts.
Yeah.
I guess what's your stance?Like I know Matt and I are pretty
optimistic of the Kelowna marketin general.
But are you like the world isgoing to end or things are going
(23:40):
to be OK?I think we live in a little bubble
here in the Okanagan.
You know, there's such population
growth that's driving everything.
You know, so much of what we see
on the commercial bankingportfolio is the support of real
estate development, whether you'vegot subtrades and whatnot.
And that's just been ticking alongfamously for the last little
while.
So we really haven't seen too many
cracks in the portfolio.
Hopefully that continues.
I mean, in my talks withdevelopers and the subtrades,
(24:01):
everybody's still doing prettywell for 2024.
Maybe you start to see projectscurtail end of this year, 2025,
maybe that's where the gap startscoming in.
But everybody seems to be doingwell for the time being.
And population growth, really, Ithink it's got to be the biggest
driver.
That Canada, obviously, GDP is
growing primarily from thatpopulation growth.
And then you see that even more soin this amazing place.
Yeah, I mean, we've spoken aboutthis before.
(24:22):
It's like, as a developer, would Iwant to be developing in BC right
now with provincial legislationthat's been coming out?
There's a lot of volatility fromit.
But like you said, said the safetynets in the population like and
how amazing it is here well yeahyeah and the we in this building
and then you get to hang out withmath that's right oh and i have a
party man yeah so that is uh yeahyeah a family house is worth it
(24:43):
just for that you said you don'tthink the shoe has dropped yet on
the interest that interesting.
Well, I mean, in a 2023, we're
thinking that rates were comingkind of Q1 2024.
And now, I mean, the Bank ofCanada's got their next
announcement tomorrow, allindications.
It's a holding pattern, reallylooking for what kind of
additional commentary they provideon that.
But it's really going to be amatter of, you know, is it Q2 or
(25:03):
is it Q3?And they're really concerned about
giving too much of an indicationthat rates are going to start
coming down because then it'sgoing to be that flood in the
market.
You know, the amount of people
that are kind of sitting on thesidelines waiting to make a move
on real estate is prettystaggering.
So we'll see.
It's though.
Like to me, the floodgates havekind of already opened early for
(25:24):
spring market like we're recordingthis early march and this will be
out a little bit later but likeit's been busy fixed rates have
just steadily been bumping downyou know like you can get an
insured mortgage for less thanfive percent now people are
comfortable with that a lot moreactivity so yeah i agree like as
soon as we get that first rate cutand there's confidence it's gonna
(25:46):
be the clouds have lifted then doyou think they're gonna give a
rate cut and then the next onethey're gonna bump it back up
again and just be gotcha yeah ifeel like they don't want to over
correct here and it's so hard idon't envy their position because
you know you're looking like sofar out yeah the lens that they're
looking through it's it is kind ofnice though to be in a position
(26:10):
where like if things start to sinkthere is a lever to pull where
they could just drop the ratesright so it's kind of nice to have
that instead of just the rates atrock bottom then she hits the fan
so what do you do now you know solike i feel like that's a bit of a
yeah can you give us a little bitof rundown on some terminology?
Like talk a lot about cap ratesand commercial.
(26:32):
Like if somebody wants to getapproved for a commercial
mortgage, say it's an investmentproperty, multifamily or
commercial office space, and theycome to your office and say, Hey,
Will, give me some money.
What are the requirements?
Yeah.
Great question.
So I would say in the currentenvironment that we're in, great
So I would say in the currentenvironment that we're
loan-to-value is kind of out ofthe So the amount of financing
that you get Yeah, relative toquestion.
(26:53):
the value of the it doesn't eventhe biggest in, thing we're
looking for is the debt servicingquestion.
ratio.
property, really, So whatever your
net operating income is, cash flowfrom the property less any
operating expenses needs to betypically at 1.25 to 1 of whatever
your debt obligations are.
So if you're going to a chartered
bank, you're going to have to havesome form of a buffer in there.
So that's typically how we'relooking at it.
(27:14):
So having looked at a fair amountof commercial and income producing
properties in the Okanagan here,right now, say you're borrowing at
6% financing, for example, you'relike 45% loan to value.
So you're going to get 45%financing of the purchase price.
Now, that I think has been in partwhy we've seen a bit of less
action in that space.
The sellers aren't really willing
to give things up for a discountright now, like where are you
(27:37):
going to deploy your capital?And the buyers are having to come
up with these massive equitycontributions in order to get
these deals off the line.
Now, you may be able to go to
other lenders out there that don'tcare about cashflow as much, but
amongst the big five, you're goingto need to be able to cover those
debt obligations with a buffer ontop of that.
And so there was so much actiontwo years ago when rates were
maybe 3%.
Now there's a lot less happening
(27:59):
unless maybe there's ulteriormotives for a property.
Could be income producing for themoment.
Maybe you've got aspirations todevelop that.
In those situations where you cansee the value add down the line,
maybe people are willing to make amove in those cases.
So would it have to be like anexperienced developer to buy
something like that to getfavorable?
Well, so if you're looking at itfrom a traditional commercial
banking perspective, in terms ofhow much money can we give you for
that I'm really only going to lookat it based on what the leases
(28:22):
support in rental revenue.
If you're looking at it from a
development perspective, mostlikely, depending on the dollar
value, you're probably going tohave to talk to a credit union.
But I mean, it can take a littlewhile to get those plans in place.
So maybe it is you're financingwith a chartered bank at the
get-go, get those permits andwhatnot.
Down the line, the credit unioncan look at financing the Not to
(29:06):
put you on the spot here, but howdoes a bank look at something like
a vendor financing on projects?It seems like a lot of the deals
have some sort of creativefinancing Yeah.
I mean, I would say right now withthe tricky landscape and the
divide between buyers and sellerson the commercial side, like those
creative aspects to a deal, it'skind of the differentiating factor
to get things over the line.
Yeah.
It would probably need to be dealspecific.
I can't say in my experience doingany real estate financing, there
has been a vendor note behind thebank.
We don't typically love that.
I mean, the issue there is whether
it's interest accruing andamortizing, then you're going to
have to consider how is this loangoing to get're fully behind the
(29:31):
bank on this, doesn't matter.
Then that could really probably
help you get in the deal acrossthe line.
The bank would have to becomfortable with that.
But if there's any element of debtrepayment, I mean, the biggest
issue you're facing in today'senvironment is how do I get this
thing to debt service at thehigher interest rate environment?
(29:52):
Because we haven't really seenrents booming like we have on the
capital value appreciation.
Now, how that pans out over the
next 12 to 24 months in thishigher interest rate environment,
maybe we start seeing some ofthese properties that can't quite
debt service at the higher ratescoming on the market.
There just hasn't been a whole lotof transactions taking place from
what seen.
Yeah.
Like it's pretty tough to have avendor take back behind, like in
(30:14):
second position, like to make upfor that equity you need fine.
But then if you're debt servicingit, like unless the vendor take
backs at like 1% on a 50 year AMand the payment's so small that
the lender's like, oh, cool.
It doesn't actually like they can
afford that in their debt serviceratios.
You know, I think when you getinto that larger landscape, yeah,
(30:36):
it kind of has to play a role.
The funny thing you mentioned
there is like you guys qualifymostly on that cashflow, that debt
service ratio.
And I find a lot of people trying
to get into that space, whetherit's a multifamily or office
space, they're almost upset.
Like, Oh my God, like, just give
me the money, you know, like, butit's such a safety net to go
through the due diligence withcommercial lenders and appraisers
(30:59):
and everyone that's doing theirjob.
Because like, how are you going tofloat a $4,000 net loss every
month?You know, like people don't really
look at it that way on the cashflow.
They look at, you know, theupside.
So I think it is like superimportant that banks are doing
their job in that regard.
I would add on that too, from a
commercial banking perspective,when we're looking at these income
producing properties, it's reallyon the credit merit of the
property itself.
Like we're not considering what
(31:20):
your personal net income is tofloat any gaps there.
It's really, can this property onits own support the mortgage
that's being requested?So that you sometimes see that bit
of a difference on the smallbusiness side, perhaps where they
take into consideration thepersonal credit worthiness a
little bit more, but yeah, incommercial, it's pretty much on
the merit of the I mean, you justmentioned the rent, where rents
(31:41):
are, do you feel commercial spaceright now is fairly equal for the
rental income compared toresidential rent?
And the reason I'm asking isbecause so obviously in BC, we
have residential rent controltenancy act where Alberta, we
don't.
Now, Alberta, we see home prices
and I know like we're completelydifferent provinces with different
(32:04):
resources and different buyers,but like it works pretty well
there.
If we just remove that completely
in BC, do you think it would stillwork?
And I mean, it does work on thecommercial side.
There is no rent control.
So as as a like if you're looking
at a multifamily building, is itnot just way more risky in BC
because you know that you'rehandcuffed by rent increase?
(32:25):
Yeah, I would say I'm not quite asfamiliar on the multifamily where
cap rates are right now.
I'm a little bit out of touch on
that.
But what I would say is from a
risk perspective, on theresidential side, we find a little
bit more comfort in the rentalmarket.
Whereas on commercial, maybe youfeel the ebbs and flows a little
bit harder.
I mean, in Kelowna specifically,
vacancy on the residential sidehas been so low for so long.
(32:47):
So I think that de-risks theproperty in a sense.
Whereas, you know, if you've gotcommercial property and there's
like one or two tenants, if one ofthose tenants leave, that's a big
deal.
So that can carry a little bit
more risk.
Whereas if you're in a
multifamily, your risk is a littlebit more dispersed because there's
so many tenants in the Yeah.
And I think you see that a lot of
times on the cap rate too.
(33:09):
Like people are more comfortable.
Like in Vancouver, taking a threecap on a multifamily is great.
You're not making any money, butthere's a lot of security and the
vacancy being zero.
Big time.
I was wondering that when you weretalking about loaning, like how it
feels like Vancouver's been inthat space for a long time, like
10 years.
In The and a half cap?
Yeah.
Like the low rental rates for how
much a building costs.
Yeah, I mean, you see it also not
just on the multifamily, but inthe industrial commercial side as
(33:30):
well.
It's insane.
Like, I think I was looking at onein North Vancouver and it was
three and a half, four cap onindustrial property.
And so it's just the amount ofequity to get those deals done.
I guess it's been that way for areally long time, whereas we're
catching up.
Yeah, it is kind of mind boggling.
So is So is it different lendingpractices here or there, or are
they just coming up with more downYeah, pretty much more money in.
(33:55):
I think for that, it's moreinstitutional buyers as well,
right?You're looking at people that are
looking to park their moneyknowing it's like, I don't want to
say it's like stress-free, butthey're like, hey, I've got $50
million, whether it's from apension fund that they're
facilitating or something.
Well, they're just like, I need to
park it here.
I'm going to earn a small
percentage, but there's going tobe great capital appreciation.
(34:17):
There's very minimal risk where ifyou're trying to build up your
portfolio as a smaller investor,you're going to go to like
Northern BC, Northern Creston.
Yeah.
That's exactly what I said.
I Yeah.
mean, Will geez, wouldn NorthernNorthern BC, Creston.
that's Yeah, exactly what I said.
Yeah.
I geez, mean, Will wouldn't evenlend in Creston.
(34:38):
Come on, I I had to It makes totalyou know, sense, do you get into
something like that?A lot of money.
Yeah.
Yeah.
It begs the question, like whywould you park your money there if
you can make better returnelsewhere?
Like, yeah, there's a little bitmore risk to it, but it's the same
as a bank, I guess.
Like banks could go out and deploy
money at 12%, but do they want theheadache of defaults and chasing
(35:00):
that asset back down?I think seen is like, unless
you're institutional investor,like you mentioned, like the
consolidation roll-up play,whereas you've accumulated a
portfolio, you leverage them up,buy one, pay that down, and then
just keep rolling it up to getbigger and bigger.
So, I mean, that's the onlyscenario that I've seen where
people can pull that off becauseit's hard to understand that
(35:21):
return on investment when you'rehaving to put so much equity in.
But if you've done it for so longand you're so familiar with the
space, you understand what theupside is, whether it's rental
appreciation and capitalappreciation, if the assets are
paying for themselves, then maybethat's how you wrap your it.
Yeah.
Well, I guess the passive income
part too is a key point becausethat's taxed higher.
It's 52.2% or whatever.
So you'd rather run the
(35:42):
appreciation up, which you woulddo in Vancouver, do a refi where
there's no taxable event, deployit on another asset where you
don't really need the incomebecause you're going to be taxed
at it at such a higher rate.
In terms of Kelowna then, you're
transitioning more into thecommercial real estate agent role.
So you're going to be out workingwith similar clients and you add
like a nice value add piece bybeing able to run the numbers and
(36:02):
underwrite it.
What do you like in the Kelowna
scene right now?Like if you're transitioning,
what's kind of the best bang foryour buck that you see?
Take off the banker hat because Iknow you're just going to like be
ultra conservative.
But if you add a few million bucks
to deploy on some commercial realestate, where are you pointing
your clients?it. I mean, I think this is
probably the popular consensus,but industrial is very hot right
now.
And I think there's such a limited
(36:22):
supply available.
So we're seeing people maybe
expand geographically.
But if you can pick up some good
industrial real estate in Kelownaproper, you're, I think, going to
do very well over the long term.
Real estate development as well,
population growth is such a hugedriver to this economy.
And I think the secret's out, somany people are moving here and
not leaving.
So I think that will continue to
be really a prevalent force in howmuch building we see.
(36:43):
So I think land that you candevelop, there's going to be a ton
of upside in the long term.
I mean, driving around now, you
obviously see how many cranes areabout and how many multifamily
properties are being constructed.
So it begs the question, are we
potentially overbuilding?Who knows?
Over the long term, I thinkthere's going to certainly be
incredible demand for peoplewanting to move mean, question to
(37:04):
both you guys, are they building alot of industrial?
I haven't really seen much, likemaybe five years five years ago.
Up by the airport?Yeah, by the airport, maybe the
big ticket item.
But once that's done, I mean,
maybe Kelowna Springs, the golfcourse, who knows what'll happen
there.
I'm just, like you mentioned,
there's thousands of residentialunits coming on like condos.
I know like there's a shortage,but that seems like it will be
(37:26):
saturated.
And most of those people need the
industrial space.
I just don't know if the
industrial space will really keepup to it.
Like lease rates are pretty highfor industrial.
They've been on fire, but again, Ijust like, don't understand where
the supply could come from toreally curtail that.
I'm almost done my garage, so I'mhappy to lease that out at $50 a
(37:47):
square foot.
I I like it.
I think I might have a couple oftakers for it.
Yeah, Let's do it.
We'll kind of segue into our
wrap-up questions, which I mean,the first question is essentially
what we were just talking about.
But if you could buy one property
in the Okanagan in the next 12months, what would it be?
Yeah, I think, you know, if youlook at smaller markets like a
Creston, you can drivesignificantly higher cap rates.
(38:08):
So there was a period of time thatI was looking potentially at some
other investment properties in thesmaller, like one or two bedroom
condos.
Maybe it's a couple of years I
think old.
you can wrap your head around some
okay cashflow, like with or twobedroom maybe condos, it's a
couple of years I think old.
you can wrap your head around some
(38:30):
okay cashflow, like with themarket where it's at right now.
I don't know if you're finding awhole lot of opportunities where
it is cash flowing with 20% in.
So anywhere close to that, I think
the longer term would look prettygood.
And if you can have it almostpaying for itself, I think you're
well.
Yeah.
What's the best thing you've everon, big or small?
Well, I had a stint where I wasworking for the bank in Prince
(38:54):
George.
And while I was there, I bought a
fourplex with a friend of mine whowas also in banking.
And at the time, you know, I thinkwe were getting like 800 bucks a
door and the numbers still made somuch sense, which was kind of
good.
I was like, what are we missing
something here?This is our first ever kind of
bigger purchase.
And then we bought it and
(39:14):
everything that could have gonewrong in the first six months went
wrong.
It was an absolute nightmare.
One of the tenants just like, Ohyeah, I still have nightmares
about it.
But anyways, since then rents are
probably up like 70% and therental market in Prince George has
really gotten quite strong so if Icould buy that thing five times
over even with the first sixmonths I had to go through I would
(39:38):
so I love that you said thatbecause we've talked about this a
bunch in the show is that even ifyou buy the worst possible time if
you look back in five years orhowever long you've almost never
regret it totally right so likeyeah I think with everything going
on right now we're time that's whymatt doesn't ask for a google
review for five years clients overthe last two years have been so
(40:01):
pissed off with them just waitjust i promise in five years it'll
be a five star yeah yeah it istrue though like i mean you can
get a bit emotional but like mostof those problems you forget
about, you know?Yeah.
I find that that equation, I mean,I can't remember how you managed
your Creston one, but it's likehow that consumes your time and
whether you're willing to paysomeone for that.
(40:21):
Because there can be a lot ofheadaches that go along with
running a multifamily.
Some tenants are a lot better than
others and kind of how you fill upyour cup with like what you're
going to allocate your time to isreally important question to ask
yourself when you're getting intothose I think like setting the
expectation is very important too,because a lot of people, you know,
over the last 10, 20 years orsomething, it's been, Hey, passive
(40:44):
income, real estate, you buy andhold.
It's really simple, but really youare buying a job.
Even if you outsource it tomanagers and contractors like you
still have to be involved but ifyou calculate the hourly rate it's
still worth it yeah very much sookay what is your favorite charity
and how do you give i've alwaysbeen very involved in sports
throughout my life it's reallyopened a lot of doors from
(41:04):
relationship perspective andcharacter traits that i've picked
up And so the Special Olympics andmotion ball are something that I'm
pretty passionate about to see theimpact that sports can have on the
Special Olympians.
I've got a good friend whose son
has autism and just seeing howskiing has changed his life and
the doors that it opens and thedevelopment that he's gone through
from being involved in that.
It's something I'm passionate
about.
Yeah, that's awesome.
Love it.
How can Taylor or I or the sir
help you?Yeah, well, making the leap of
(41:25):
faith, getting at a commercialbank and getting into commercial
real estate.
So partnering with a great
brokerage here in town, HMCommercial, and I think their
values align really well withmine.
There's a ton I don't know aboutreal estate, so it's going to be a
big learning curve for me.
But really, the mentorship that
those guys can provide.
I'm going to really be looking to
build out my network over the nextyear or so.
(41:45):
So any sale leasing opportunities,primarily going to be focusing on
industrial and real estatedevelopment.
And if you've got any questions onhow to finance things, always
happy to field those calls, reallyhoping to leverage my background
in commercial banking into my realestate practice.
So just yeah, hoping to get out inin commercial banking into my real
estate practice.
much as I can.
I love that.
Yeah.
I mean, there's a lot of power tohave an agent that knows how to
(42:06):
finance those kinds of properties.
So sweet.
Yeah.
We'll pass on all our listeners
your way.
You better get ready, man.
That phone's going to ring.
All right.
Well, thank you guys so much forhaving me today.
It was awesome to be part of theshow.
All Yeah.
right.
thank Well, you guys so much forme It was today.
awesome to be part of the show.
(42:28):
Yeah.
Appreciate Yeah.
it.
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