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Episode 70 of the Toronto Under Construction podcast will focus on topics discussed during a recent “State of the GTA Housing Market” industry event hosted by Norm Li for developers, brokers, sales and marketing teams, and housing researchers. Ben mentions that the lending perspective was missing from this event, which was the catalyst for this roundtable discussion.
Meet Our Guests:
Bryceson Dodge – Empirical Capital: Bryceson joined Empirical Capital in July 2022 and is responsible for the ongoing development and strengthening of operational and financial controls in the company as well as loan origination and business development.
Bryceson brings over 15 years of professional experience, including the past 12 years with the Royal Bank of Canada where he held increasingly senior roles across the bank’s commercial real estate, corporate banking, and integrated markets franchises. Prior to joining Empirical, he led the origination, structuring, capitalization, and servicing of ~$2 billion in commercial real estate assets. He has financing experience in every province and in all real estate asset types including multi-family, retail, industrial, office, self-storage, seniors housing, data centres, and land development. Bryceson is experienced in managing bi-lateral, syndicated, government-insured, and A-B loan structures, as well and construction loans.
Bryceson is a passionate community-builder, founding a non-profit business incubator which supports individuals in his community who are experiencing food insecurity with the resources needed to achieve economic independence through self-employment. Through his organization, Northstar Startups, he and a team of volunteers partner with Scarborough-based foodbanks, delivering free programing to their clients.
Adit Kumar – Anbros Financial: Adit Kumar is part of the executive branch at Anbros Financial and AFC Mortgage Administration. Prior to then, Adit worked at various Schedule A banks including at the National Real Estate Group (‘NREG’) at Toronto Dominion (‘TD’) wherein he actively managed one of the largest commercial real estate loan portfolios in the group. Activities included origination, structuring, syndication as well as overseeing the credit process from underwriting to funding.
Anbros Financial is a leading advisory firm specialized in sourcing and structuring real estate debt capital. AFC Mortgage Administration provides mortgage administration services to 3rd party investors, both institutional and private, looking to deploy capital on a managed basis.
Richard Munroe – Atrium Mortgage Investment Corporation: Richard was appointed President of Atrium MIC and Canadian Mortgage Capital Corporation in February 2024, and Chief Operating Officer in February 2022. Prior to these appointments, Richard was part of the origination team at Atrium, having held progressively more senior titles since joining the company in 2006. In his current role, Richard is responsible for managing the origination team tasked with sourcing mortgage investments for Atrium MIC and CMCC’s lending platforms and joint venture opportunities for the company’s equity platforms. Richard is also responsible for the asset management of the wider organization’s institutional mortgage portfolios on behalf of various pension fund clients. Since joining Atrium MIC, Richard has arranged in excess of $2.0 billion in term, construction, mezzanine and equity financing across both the residential and commercial real estate sectors. He is licensed under the Financial Services Regulatory Authority of Ontario as a Mortgage Agent.
We’re excited to have these 3 amazing guests join us to discuss financing, debt, equity and the mortgage market in the Greater Toronto Area.
Affordability
Starting off with affordability, Ben mentions that the Norm Li event identified key market forces impacting housing affordability over the past five years, including government policies, financial constraints of buyers, and negative public perception around buying new housing. Conversely, innovative design and suburban market expansion were seen as factors promoting affordability.
Kicking things off with Bryceson, Ben asks from a lender perspective, what could the government do to better support housing affordability? Could it be better CMHC financing models, longer amortizations for purchasers, cheaper mortgage insurance premiums? Tune in at 5:40 for Byrceson’s response where he says “Although all levels of government have done some really great things, a third of costs for new construction goes to taxes and development fees which gets passed directly on to the end users.” He shares some thoughts on how he thinks affordability could be approved through CMHC.
Directing the next questions to Adit, Ben says that “your business has benefited from suburban expansion, as I see your signs everywhere. Pricing skyrocketed in Kitchener-Waterloo and Hamilton from 2020 to 2022, with those areas now looked at as GTA suburbs. Is building farther and farther out a reasonable way to improve affordability?” Tune in at 10:26 where Adit discusses the difference between downtown and suburban lifestyles and how moving outside of the GTA is more affordable. “Land costs are a lot cheaper [outside of the GTA], so builders can deliver product a lot cheaper”. The group discusses the difference between high-rise and low-rise affordability and suburban and urban locations.
Builder Contributions to the Housing Crisis
Moving along, Ben says another topic that was discussed during the Norm Li event was how builders have contributed to the housing crisis. He says builders have both helped and hindered housing affordability. Innovations in suite design and flexible deposit structures were noted as positive contributions. However, overpaying for land, poor construction quality, and poor site selection were significant negatives. The need for better builder discipline in land acquisition and construction practices was emphasized, indicating room for improvement in the industry’s approach to delivering housing and maintaining affordability.
Turning to Richard Ben says looking at it through a capitalist lens, should developers care about housing affordability, or should they focus on delivering high-quality product and making a risk-adjusted profit? Tune in at 4:19 to hear Richard say, “for sure they should! Any developer who’s interested in the longevity of their business has got to be concerned if your customers can’t afford what you’re selling”. The group discusses the pricing of new condos and how that growth has affected the market and perpetuated the “big bad developer” narrative.
As the discussion continues, Ben asks Adit a two part question saying “we’ve seen blame for affordability fall on developers that paid too much for land. Do you agree with that sentiment, and what tactics did you see your clients do to secure land at prices below the vendor’s expectations?” Tune in at 21:27 for Adit’s response.
Turning to Bryceson, Ben says I know you mostly do land financing, but how often do you get out and see previous projects completed by your clients? Are you satisfied with the product being delivered right now in the new housing space? Tune in at 25:10 where Bryceson says “that’s definitely one of the best parts about being involved in real estate; seeing the finished product.” He continues to discuss how he feels about the product being delivered saying “if we’re trying to solve housing affordability we don’t need masterpieces. We need a ton of nice product.”
Short and Long Term Market Outlook
Jumping into the market outlooks, Ben says that the short-term market predictions included fewer investor buyers, and slower sales. In contrast, the long-term outlook was more optimistic, with expectations for changes in government policies, a better product mix, and lifestyle changes driving demand. There is a general anticipation that policy adjustments will eventually improve the housing market landscape.
Directing the first question to Adit, Ben says a lot of the development lands purchased over the last five years are not moving forward to construction due to the weak housing market. What is happening with these land loans, are they all getting renewed for one or two more years? Tune in at 27:48 for his response “lenders generally don’t want problems….When loan terms do expire lenders generally tend to work with borrowers. They try to work with solutions because no one wants to enforce in the current market environment.” Ben asks the lenders “how are you managing some of these situations where, maybe, the LTVs are getting into areas where you’re not feeling comfortable with?” Tune in at 29:16 for their responses. Communication is key!
Asking Richard the next question, Ben says, “with a lack of transactions in the development land space, how are appraisers assessing market value right now? And if the appraisals come up short, are you simply just lowering your loan amount to your preferred LTV?” Tune in to 32:01 for Richard’s response.
Moving along to Bryceson, Ben asks “has your firm been more conservative with your capital this year, where are you sending your clients if you cannot help them, what is the next option after private capital?” Tune in at 34:40 for his response, “we’re more conservative than we’ve ever been”.
Builder Priorities
The next topic covered during the event was builder priorities. Ben summarizes that in the short term, builders are prioritizing improving public sentiment, operational focus, and survival. Long-term priorities include getting the product right, better data on market absorption, and construction innovation. He says to Bryceson, “you work with a lot of smaller developers, what advice are you giving them on their short-term priorities? Are you suggesting downzoning their sites for stacked townhouses or traditional towns to make them more saleable, sell their holdings, or look at other land use alternatives?” Tune in at 40:48 for Bryceson’s suggestion to his clients about discussion on sticking to what you’re good at!
Continuing the discussion, Ben says to Adit, “your firm arranges inventory loans for clients, are you advising them to seek out this type of financing, rent the units out, sell them at a discounted rate compared to 2022, sit on them, put them on AirBnB?” Tune in at 43:20 to hear Adit’s suggestions to his clients and a discussion on inventory loans.
Broker Commissions
An interesting discussion at the Norm Li event was Broker commissions, which highlighted the current trend toward higher rates to push unsold inventory and the potential benefits of paying commissions sooner. Another idea is a lower commission and a faster payout. He asks Richard to share his thoughts on the new housing market being driven by investors, units selling with 4%, 5% and 6% commissions, and agents being taken on exotic trips as incentives. Tune in at 47:17 where Richard says “those agents would probably be better served, putting their clients into projects that are actually going to be viable and proceed to construction. It’s short-sighted to chase those higher commissions.”
Continuing to discuss commissions, Ben asks Adit, when a broker brings a land deal or a construction deal to a lender, is it a set commission, or is it negotiable? Tune in at 49:30 where Adit says “everything is negotiable.”
Land Deals and Zoning Rules
During the Norm Li event discussion around land deals highlighted the impact of timing and changing zoning rules on real estate transactions. Many developers were caught in bad deals due to the market frenzy, but recent zoning changes have opened up more prime land and opportunity to add more density. Ben says to Bryceson, “I’m sure you lean heavily on planners to assess the land deals you’re underwriting, did you find that developers were being too aggressive in terms of how much density they could get approvals for?” Tune in at 51:10 for a discussion on underwriting where Bryceson says “we have a thorough due diligence process.” The guys continue to discuss underwriting, GFA, and density and how to adapt in this current market.
Public Perception and Condo Living
The negative public perception of condo living and the development industry was a major concern during the event. The industry faces a challenge in educating the public about the benefits of condos and combating the stigma of poor construction and developer greed. It was noted that a coordinated approach to improve the image of condo living is necessary. Ben says to Adit, “your firm helps invest on behalf of accredited investors, family offices, small institutions. Are they looking to get out of the condo development space, what are their general perceptions about condo living and the future of the industry?” Tune in at 1:01:11 where Adit says “Condo development lands are out of favour today, we love low-rise,” and expands on the challenges of building high-rise developments.
Behind closed doors, many high-rise developers are not happy with the job that BILD is doing in promoting density and urban development, as they feel they spend too much time pushing for greenfield housing, which hurts their public perception given the negative opinion of sprawl. Ben asks Bryceson, “do you think the condo and rental apartment industries need a better spokesperson to engage with media outlets, to do a better job of getting the proper developer story out there?” Tune in at 1:03:26 for his response.
Industry Regulation
The idea of establishing a regulatory body to improve construction standards and public trust was discussed at the event. Such regulation could help address concerns about construction quality and the reputation of the development industry. This reflects a willingness within the industry to embrace higher standards and accountability. Turning to Richard, Ben asks “do you think a regulatory body could help ensure better compliance and quality in real estate development? Or is Tarion and HCRA enough?” Tune in at 1:06:04 where he says “we don’t need anymore regulatory bodies. I think affordability is the larger concern.”
Before hitting the rapid fire questions, Ben asks the group to share what they are worried about right now when it comes to the real estate industry. In the rapid fire, the guys answer questions like, how many more rate cuts do we get this year?, Would you buy individual stocks or an index fund today?, During the underwriting process, do you Google the borrowers, check their social media for off-the wall opinions? What are your investors more worried about, closing risk for new condo projects, or distressed land deals? Would you provide a loan for a condo to be built by the Trump Organization? When looking at a developer’s financials, what’s a red flag you look for? Think of the worst deal you’ve ever done, what did you miss in the underwriting process? And more!
Tune in now to episode 70 of the Toronto Under Construction podcast!
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