CMP 13.08

MORTGAGEBROKERNEWS.CA ISSUE 13.08 | $12.95

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LENDING

GUIDE Experts in the space outline how brokers can make the transition from residential to commercial

THE GREAT RATE QUESTION

Will the market see a shift toward variable-rate mortgages?

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INSIDE M3 GROUP’S METEORIC RISE CEO Luc Bernard tells CMP what’s next for the mega-network

HOW TO INSPIRE YOUR STAFF Five ways to create an uplifting and productive culture

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THE POCKET SIZED MORTGAGE GUIDE. Everything you need to help your clients navigate the Canadian mortgage landscape. Personalized profiles, free for DLC brokers.

We’re Canada’s leading mortgage company for a reason.

When you’re part of Dominion Lending Centres, you get access to latest cutting-edge technology in the industry, like the first-of-its-kind mobile mortgage app My Mortgage Toolbox. Don’t get left behind by standing still. Find out what thousands of mortgage professionals have already discovered, and join DLC.

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ISSUE 13.08

CONTENTS

COMMERCIAL LENDING GUIDE SPECIAL REPORT

22

What are the driving trends and key opportunities in Canada’s commercial mortgage market? CMP caught up with four top commercial lenders to find out

WHEN OTHERS SAY ‘‘NO WAY’’ WE SAY ‘‘HERE’S HOW’’.

Romspen Investment Corporation is a non-bank mortgage lender specializing in commercial real estate across Canada and the United States. With over $2.2 billion under administration, we offer customized mortgage solutions for term, bridge and construction financing from $5M to $100M. Blake Cassidy or Pierre Leonard | 800 494 0389 | www.romspen.com

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ISSUE 13.08

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CONTENTS

30

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UPFRONT 04 Editorial

A new way for brokers to approach first-time buyers

UPFRONT

44

twitter.com/CMPmagazine

10

NEWS ANALYSIS As the residential market continues to struggle, are brokers missing out by ignoring the commercial segment?

A CMHC-insured mortgage can be a boon for certain commercial deals. But which transactions are best suited for insurance?

PEOPLE

INDUSTRY ICON

M3 Group chairman and CEO Luc Bernard tells CMP how he created Canada’s largest broker network from scratch in just a few short years

18

Are borrowers starting to turn toward variable-rate mortgages?

08 Head to head

Is Canada’s high household debt level still cause for alarm?

12 Technology update

Online portals are becoming Canadians’ go-to source for real estate and mortgage information

14 Broker update

Why a reliable marketing system is a must for brokers

16 Opinion

FEATURES

TO INSURE OR NOT TO INSURE?

06 Statistics

34 PEOPLE

BROKER INSIGHT Sabeena Bubber details how she built a thriving business – and how she’s helping others do the same

The CSA’s proposal to cut brokers out of the syndicated mortgage process shows an alarming lack of foresight

PEOPLE 38 Career path

Charting Jason Georgopoulos’ rise from telemarketer to mortgage master

40 Other life

Geoff Lee takes to the ice to help children in need

36 FEATURES

BECOME AN INSPIRATIONAL MANAGER

Five ways to inspire – and motivate – your employees

2

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UPFRONT

EDITORIAL

First-time buyers will be back

I

t’s been a turbulent year. The real estate market, long driven by searing activity in Vancouver and Toronto, has been in the doldrums, and the rebound everyone expected simply hasn’t materialized (though by all accounts, it could still happen in the fall).

Perhaps the chief reason for the relative dearth of market activity has been the absence of first-time buyers, who account for nearly half of all buyers in Canada’s housing market. The most recent B-20 changes substantially reduced their buying power and relegated most of them to the sidelines this year. Many have turned to the condo market in Toronto – the only sector currently reporting surging sales and bidding wars – but a great many more are reportedly saving down payments.

The housing market is a delicate ecosystem. The removal of first-time buyers from the market affects other buyers’ ability to move up the ladder The housing market is a delicate ecosystem. The removal of first-time buyers from the market affects other buyers’ ability to move up the ladder. If there’s nobody to buy a move-up buyer’s home, then they’re stuck where they are – hence the languid market activity.

While first-time buyers are saving up for their down payments, it might be worthwhile for brokers to educate them on different ways of looking at homeownership. The rising cost of mortgage payments relative to incomes, not to mention the extra maintenance involved in taking care of a home, can make homeownership more burdensome than worthwhile for many. However, owning real estate can be an undeniable money-maker. An investment property can help build wealth and, perhaps most important in a rising-rate environment, augment qualifying power.

So why shouldn’t first-time buyers rent to live and rent out what they own?

There are quite a few steps on the property ladder, and starting out by buying an investment property could propel younger buyers upwards and into their dream home sooner than they might think.

The team at Canadian Mortgage Professional

www.mortgagebrokernews.ca ISSUE 13.08 EDITORIAL Writers Neil Sharma Joe Rosengarten Libby MacDonald Ephraim Vecina Heather Turner Hannah Go Copy Editor Clare Alexander

CONTRIBUTORS Samantha Gale Paul McGill Aaron Hurst

ART & PRODUCTION Designers Marla Morelos Joenel Salvador Production Manager Alicia Chin Advertising Coordinator Ella Dayandante

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Copyright is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor. Contributions are invited, but copies of work should be kept, as the magazine can accept no responsibility for loss

9/08/2018 5:44:17 AM

A school catered to Mortgage Brokers and the skills they need to succeed.

Whether you are new to the industry, curious about marketing yourself, wondering how to set up your business, or maybe you need a refresh on a particular deal, CENTUM University is always in session!

thecentumnetwork@centum.ca | thecentumnetwork.ca ®/™ Trademarks owned by Centum Financial Group Inc. © 2018 Centum Financial Group Inc. The intent of this communication is for informational purposes only, and is not intended to be a solicitation to anyone under contract with another mortgage brokerage operation.

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UPFRONT

STATISTICS

The future isn’t fixed

WHAT CONSUMERS WANT

Even as interest rates rise, homebuyers are on the fence about whether to choose a fixed or variable rate FIXED-RATE MORTGAGES have long been the clear preference among Canadian homeowners, 77% of whom opted for the certainty of a fixed rate over a variable one.

However, only 54% of those who plan to purchase a home in the next year say they would select a fixed-rate product, while 25% said they’re not sure about the best way to go.

Yet the majority of those surveyed (83%) said they prefer “predictability and stability

over risk,” and 72% believe interest rates are almost certain to rise again. The lower numbers attached to variable-rate products are tempting, though: 60% of consumers said they believe rate is the most important consideration when selecting a mortgage.

Tracy Best of CIBC, which conducted the survey, warned consumers that “the considerations are complex, so getting advice can really help you meet your needs and financial goals.”

Despite the fact that more than three-quarters of Canadians currently hold a fixed-rate product, those contemplating what mortgage they would choose today were much less definite about their preference. Overall, only 54% of Canadians said they’d opt for a fixed rate, while 19% said they’d go with variable and 26% didn’t know. In certain areas of the country (most notably the GTA), the pull toward variable-rate mortgages was even stronger.

Fixed

Variable

Don’t know

I wouldn’t acquire a mortgage

GREATER VANCOUVER AREA

23%

$170,000

Percentage of Canadians who currently have a variable-rate mortgage

Average amount Canadians owe on their mortgage

39%

Consumers who are concerned about their overall debt load

30%

47%

18%

31%

21%

Canadians who expect to still have a mortgage when they retire Source: CIBC Consumer Research and Advice, July 2018

WHAT CONSUMERS HAVE

TERM LIMITS

More than three-quarters of Canadian mortgage holders currently have a fixed-rate mortgage, a preference CIBC attributes to a desire for stability, “especially those in the early days of paying down their mortgage or juggling household expenses.”

When asked what term length they would choose when acquiring, refinancing or renewing a mortgage, consumers of every income level expressed a distinct preference for a term of three to five years.

Fixed

Long-term (7-10 years)

Medium-term (3-5 years)

Don’t know

Variable

British Columbia

72%

28% Alberta

16%

10%

9% 7%

79%

21% Manitoba/Saskatchewan Ontario

78%

22% Quebec

15%

23% 91%

9%

20% 54%

61%

7% 13%

65%

71%

29%

Less than $50,000 income

Atlantic provinces

$50,000–$99,000 income

$100,000 or more income

79%

21%

Source: CIBC Consumer Research and Advice, July 2018

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Short-term (1-2 years)

Source: CIBC Consumer Research and Advice, July 2018

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IF YOU WERE TO ACQUIRE, REFINANCE OR RENEW A MORTGAGE TODAY, WHAT TYPE OF PRODUCT WOULD YOU CHOOSE? BRITISH COLUMBIA 34%

17%

23%

ONTARIO

26% 44%

18%

20%

18%

QUEBEC 50%

16%

24% 10%

MANITOBA/ SASKATCHEWAN 53%

17%

24%

25%

GREATER TORONTO AREA

ALBERTA 47%

9% 13%

12%

39%

24%

18%

ATLANTIC PROVINCES

19%

37%

6%

24%

33%

Source: CIBC Consumer Research and Advice, July 2018

GOING LOW

RATES ON THE RISE

The idea that getting the lowest rate possible is the only thing that matters when choosing a mortgage resonated most strongly with gen x-ers, but the tide appears to be turning with the younger generation: Millennials were the cohort most likely to disagree with that statement.

The Bank of Canada has raised interest rates four times since mid-2017 – and more than 70% of Canadians believe another increase is likely in the next 12 months.

Agree that a low rate is all that matters

70% 60% 50%

Don’t agree

63%

58%

Don’t know

DO YOU BELIEVE RATES ARE LIKELY TO INCREASE IN THE NEXT 12 MONTHS?

58%

40% 30% 20%

32%

10% 0%

29% 10%

Age 18-34

24% 8%

Age 35-54

Increase 72% Stay the same 26% Decrease 2%

17%

Age 55+ Source: CIBC Consumer Research and Advice, July 2018

Source: CIBC Consumer Research and Advice, July 2018

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UPFRONT

HEAD TO HEAD

Are fears about Canada’s level of debt overblown?

Canadians’ household debt level remains high, but is it truly cause for alarm?

Robert McLister Founder RateSpy.com

“Stat after stat confirms Canada’s debt risk. Surging home prices are the number-one issue – the average Toronto home costs nearly 10 times Toronto’s median household income – but there’s also a growing proclivity to spend. Take car loans, for example. Over half are now seven-plus years, with some up to 10 years – on a depreciating asset!

Mortgage carrying costs are comparable to 1988, but the ability of borrowers to withstand unemployment or rate spikes is worse. That said, none of this justifies over-tightening mortgage regulations on everyone or undermining mortgage competition, which is what regulators have done.”

Ron Butler

Mortgage broker Butler Mortgage “More Canadian families are at their debt limit now than ever in the past.

But how to approach the problem?

Increased mandatory financial literacy is required: multiple semesters in high school, public service ads in the media.

With mortgages, we need better policy. The qualifying rate makes sense – except for renewals and transfers – but increasing capital requirements and limiting bulk coverage at the mortgage insurers is dumb because lower rates always help consumers. Mortgage debt provides a roof over Canadians’ heads; keeping mortgage rates low is the right government policy.”

Daniel Johanis Mortgage planner The Mortgage Centre

“Canada is nearing the end of the latest economic cycle, and we need to look at ways to de-leverage ourselves to help weather the change.

The Bank for International Settlements and the OECD recently identified Canada as one of the top three nations at risk of a banking crisis based on several indicators, including household debt. Even though Stats Canada has come out lately with some positive news on consumer spending habits and lower quarterly debt levels, other factors such as tariffs, crossborder trade wars and rising interest rates could see Canadians biting off more debt than they can chew.”

DEBT NATION Canada’s debt load is down, according to Stats Canada, which reported this summer that the ratio of household credit to disposable income in Canada fell to 168% in the first quarter of 2018, down from a record high of 170% months earlier. Also in the first quarter of the year, the country’s mortgage borrowing fell by $42 billion, hitting its lowest level since mid-2014. Nonetheless, three out of every four Canadians recently told MNP Debt that they’re concerned about the prospect of another interest rate rise. “Make no mistake about it – the level of household indebtedness in Canada is still very concerning,” said MNP president Grant Bazian.

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UPFRONT

NEWS ANALYSIS

Are brokers missing out?

The commercial mortgage space has a major shortage of brokers, despite booming economies in Canadian cities causing demand for office and industrial space to surge

THE COMMERCIAL mortgage space is replete with opportunities for brokers – but too few are taking advantage of them. Commercial mortgages do involve a noteworthy complication: They’re time-consuming, which puts brokers at risk of losing a major chunk time on a failed deal. But, as any commercial mortgage broker can attest, the payday is worthwhile.

Unlike in the residential space, competition isn’t stiff on the commercial side. Greg Vorwaller, president of private lender Trez Capital, has some advice for residential brokers tired of diminishing returns on the residential side, which has taken a major hit from the recent B-20 changes.

“If they have the right skills and can convert their ability from residential to the commercial side, the distinction on the commercial side is that your customer base tends to be more sophis-

At the outset, residential brokers looking to dip their toes into the commercial space should align themselves with a well respected firm, Vorwaller advises.

“You automatically give yourself some credentials that will enable you to open up doors to opportunity,” he says. “We’ve also seen people on the residential side move to commercial firms so that they’re associating themselves with people with experience. They work with them to gain the experience and have the credibility factor of being affiliated with specialists in commercial mortgage brokerage.”

Hot commercial markets are providing ample opportunity for brokers to check out this space: In Toronto, the industrial sector has a vacancy rate of 0.7%, according to Colliers International.

While there’s only 5.5 million square feet of

“We’ve seen people on the residential side move to commercial firms so that they’re associating with people with experience” Greg Vorwaller, Trez Capital ticated,” Vorwaller says. “The mortgage broker has to possess the financial, analytical and underwriting skills needed to position a commercial mortgage loan opportunity they’re brokering in the right way to garner interest from firms such as ourselves that do look at commercial loans through the broker channel.”

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vacant space, there’s also 4.7 million square feet of industrial space under construction at the moment. Toronto and Vancouver are the second and fourth most sought-after cities for industrial leasing in North America.

According to Laura Martin, chief operations officer at Matrix Mortgage Global, a burgeoning

market is driving the craze for industrial space.

“The rise of e-commerce has had serious impacts on the Canadian industrial real estate market, specifically with regard to high-tech spaces able to handle the complex logistics of ‘last mile’ delivery,” she says. “Such order fulfillment centres require high ceilings for transport, as well as energy-efficient and powerful wiring to accommodate all manner of packing, shipping, storing and sorting.”

Paul Soni, owner and principal broker of Money Solutions, is befuddled by the seemingly paltry number of brokers on the commercial side, which he’s trying to bolster by directing his agents toward more lucrative commercial deals.

“I’ve been teaching my own agents to try to focus more on the commercial construction side because the number of agents doing this is very small,” he says. “There are a number of clients out there who need refinances. Some of them

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A SECTOR ON FIRE The commercial sector is expected to remain strong in Vancouver and Toronto – particularly the latter, where investment in nearly all classes of commercial real estate is projected to rise in 2018.

2017 investment 2018 investment (forecast)

TORONTO Office Industrial Retail Multi-family Land Hotel

$4.2 billion $4.5 billion $3.5 billion $5 billion $2.8 billion $3.6 billion $1.5 billion $1.6 billion $2.3 billion $2.6 billion $1.4 billion $1 billion

VANCOUVER Office

Industrial

already have mortgages with their present institutions, but they’re not getting extra money from them, so people need equity take-out as well.

Lenders have new programs out for commercial clients, like HELOCs they can use for business

“I get quite a few deals from other brokers, too, even the bigger ones,” he says. “A lot of them don’t have the right people doing commercial mortgages, or not enough experience, so they end up losing the deals because they don’t know

“E-commerce has had serious impacts on the [industrial] market, specifically with regard to high-tech spaces” Laura Martin, Matrix Mortgage Global purposes. There’s a lot of good stuff out there that agents can use to diversify themselves.”

It’s not just the meagre number of brokers that Soni finds confounding. He says there are also too few brokers with the requisite experience, which can sometimes imperil deals. That, too, presents opportunity.

how to structure them and they need some guidance for them.”

Comportment is an another important consideration for brokers on the commercial side, because commercial real estate investors expect a certain level of professionalism. For that reason, Soni always accompanies his agents

Retail Multi-family Land Hotel

$2.39 billion $2.4 billion $1.39 billion $1.4 billion $3.6 billion $1.9 billion $1.3 billion $1.4 billion $2.7 billion 2.8 billion $362 million $325 million Source: 2018 Real Estate Market Outlook, CBRE

to meet clients.

“It looks better to the client if they’re working with somebody more experienced,” he says.

“Agents are usually more comfortable talking to residential clients because they’re just normal clients, but when you’re talking to someone about a construction deal, you have to talk to them like a businessperson. Agents need to be taught confidence.”

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UPFRONT

TECHNOLOGY UPDATE NEWS BRIEFS TD Bank launches ‘mortgage concierge’ via mobile app

In late June, TD Bank announced the latest feature to be added to its mobile banking app: a mortgage concierge service that quickly matches wouldbe buyers with mortgage advisors.

“Using geolocation technology, the new service connects customers with mobile mortgage specialists who are nearby and available, offering seamless access to mortgage advice for TD mobile customers,” the bank said. The service was launched in response to a recent survey by the bank, which found that 56% of first-time buyers in Canada were afraid of skipping crucial steps in the home-buying process.

Commercial property data portal looks to expand to Canada

Fresh off a $30 million fundraising round, commercial real estate information firm Reonomy announced that it hopes to expand to Canada and Western Europe. After a three-year pause in fundraising activity, during which Reonomy expanded to 3,000 counties and 20,000 municipalities across the US, this latest capital raise brings the company’s total investment to $68.4 million. Reonomy said it is also planning to develop occupierfocused products and refine predictive analytics capabilities over the next 12 to 18 months.

Altus Group acquires collaborative solutions provider

Commercial real estate services provider Altus Group has acquired Paris-based collaborative solutions provider Taliance Group for around $31 million. “The acquisition of Taliance broadens our global asset and portfolio management

offerings, while immediately increasing our market share in Europe,” said Altus CEO Robert Corteau. “By combining the best-in-class capabilities of ARGUS with Taliance, we’re able to provide clients globally with a compelling end-to-end solution for managing performance at any level.”

Laurentian Bank creates new role focused on digital banking

In late June, Laurentian Bank announced the creation of a new position: executive vice-president for personal digital banking, which will oversee sales, marketing and digital retail distribution, as well as activities conducted through B2B Bank’s network of independent financial advisors, dealers and mortgage brokers. “Since the launch of our transformation plan in 2015, we have made good progress in achieving key milestones and growth targets,” said Laurentian Bank Financial Group president and CEO François Desjardins.

“We are now entering an important phase of our plan which will see us transitioning to a digital banking model.”

Lastline reports top cybersecurity threats to fintech companies

In its latest Malscape Snapshot report, advanced breach protection specialist Lastline revealed that iSpy keylogger infections – malware that surreptitiously forwards victims’ credentials to servers controlled by the keylogger operators – predominate among fintech firms.

Other notable malware infections were Emotet and URSNIF keyloggers. Aside from being very evasive, these strains have been deemed especially insidious, as they are transferred from unit to unit via Microsoft Office documents.

“We definitely detected a higher than usual incidence of very sophisticated malware,” said Andy Norton, Lastline’s director of threat intelligence.

Online portals blossoming in Canada Online platforms are increasingly becoming consumers’ preferred source of mortgage and property information Online portals are increasingly answering the need for immediate access to reliable information on Canadian mortgages and real estate. In early June, online real estate marketplace Zillow and residential real estate franchisor Century 21 Canada announced the formation of an alliance that will give Zillow a direct feed of Canadian property listings.

The agreement will take advantage of Zillow’s significant footprint in North America, which will help “drive exposure of Canadian real estate listings to the millions of buyers who visit Zillow every month,” the company said, adding that approximately 79% of homebuyers in the US use online platforms to shop for homes. ”We know US buyers are interested in purchasing Canadian real estate,” said Errol Samuelson, Zillow Group’s chief industry development officer, “so we’re excited to offer the millions of buyers already coming to Zillow for their home search an easy way to see homes for sale in Canada and connect with an agent to help navigate the sale.”

Later the same month, the Canadian Real Estate Association announced a partnership with real estate information portal Local Logic to provide property-specific neighbourhood data for more than 300,000 advertised listings. Local Logic will buttress Canada’s largest real estate website, Realtor.ca, with crucial information such as proximity to transporta-

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tion hubs and vital services, along with CREA’s precise data on neighbourhood discovery and noise levels, nearby facilities like shops and schools, and more.

“This partnership is further evidence that the real estate industry in Canada acknowledges the importance of neighbourhood and

“We’re excited to offer millions of buyers ... an easy way to see homes for sale in Canada” lifestyle data for homebuyers,” said Local Logic CEO Vincent-Charles Hodder.

Finally, in late July, Buy Properties BC announced the launch of its new website, BuyPropertiesBC.ca, which was timed to respond to recent developments in the local housing segment.

“In 2018, the real estate market began to slow down in Vancouver, and this means it might be the best time for first-time homebuyers to get into the market,” the company said, adding that the combination of larger supply and buyers’ greater bargaining power is making BC homes, which have declined to 2015 price levels, even more attractive.

Homebuyers using the platform will have the ability to search more than 18,000 listings in Great Vancouver, as well as set specific criteria to find the most suitable home. Meanwhile, sellers can enjoy free property evaluations and free listings.

Q&A

Geoff Willis President and CEO NEWTON CONNECTIVITY SYSTEMS

Years in the industry 29 Fast fact Willis’ previous industry experience was focused on mortgage originations through both the brokerage and bank channels

A valuable ally for brokers How has Newton Connectivity Systems been doing lately?

Our broker/agent user base has grown by 30% this last quarter. We attribute this growth to our recent announcement that mortgage brokers can now submit any client application to every mortgage lender directly from Velocity, our broker all-in-one operating platform.

Brokers and agents were waiting for this enhancement to make Velocity their go-to operating platform, so it was a game-changer.

What were the most significant challenges you encountered during Newton’s early days?

The most significant challenge we have faced, and continue to deal with, is the changing of long-established habits and patterns. Even when the mandatory alternative is perceived by the user as subpar, and they know it would be best for them and their clients’ experience to transition to a new system, old habits and patterns die hard.

What aspects of Velocity are you most proud of?

Our tagline at Newton is “we’re different,” and I’m most proud of our staff and partners’ commitment to live by that statement to ensure we differentiate our system solutions. As a result, we are the only broker operating system where you can run your entire mortgage practice in one place, including the submission of any client application to every mortgage lender directly.

How has your technology made brokers’ lives easier?

I think Velocity has helped brokers improve their client experience by empowering them to build their own personal workflows to deliver ‘wow’-type service levels. Our new enhancements help reduce time and friction between broker and client with respect to secure document uploads, confirming down payment, and getting consents, commitments, and compliance authorized with digital signatures.

These help brokers set themselves apart from other origination channels and position us as progressive service providers.

When your ‘secret sauce’ is that it’s integrated – meaning that just by doing your job, in Velocity you are supported with automated reminders and communications to ensure the entire client approval process is consistent and best-in-class – this is our greatest impact on our users’ businesses. It’s gratifying to have people share the impact Velocity has had on their results, and it’s what drives us to provide additional enhancements.

What advice would you give to brokers who aren’t yet using Velocity?

Recognize that transitioning your submission and supporting deal-flow process is challenging, as it requires changing long-term patterns. Once you determine the volume of additional benefits Velocity delivers is worth the effort, anchor yourself to all of those benefits as you lean in and work to create those new submission habits, as they will all be apparent to you once you get through the first uncomfortable period of doing it slightly differently.

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UPFRONT

UPDATE BROKER NETWORKS

Are brokers missing the mark with marketing?

According to one consultant, brokers without a reliable system are losing out on potential business

looking for refinances, others for investment properties. I try to turn all my clients into Type A brokers. Many brokers are Type B, and those are the ones who spend all their time prospecting.”

To transform his clients into Type A brokers, Iannacito generates appointments through a sales funnel in which clients select an appointment time, then fill out a survey. “Different brokers ask different questions, but the purpose of the mortgage is important,” he says. Before

“Part of my role was to get business for mortgages … but I couldn’t get there the old-school way of calling and closing deals”

Many brokers have difficulty building their businesses, and according to one industry consultant, it’s due to their lack of a marketing system.

Daniel Iannacito of Iannacito Enterprises began his mortgage career working for CIBC in Toronto but says he struggled to generate business on his own. “Part of my role at CIBC was to get business for mortgages and investments – although mortgages were the bulk of my business – but I couldn’t get there the old-school way of calling and closing deals. So I developed my

NEWS BRIEFS

own system through trial and error and found a system that works.”

Iannacito divides mortgage brokers into two groups: Type A and Type B. The former consistently deal with quality clients and therefore close more deals and make more money.

However, he says, the majority of brokers fall into the latter category.

“I run ad campaigns for different types of clients,” Iannacito says. “Some mortgage brokers are looking for first-time buyers, others are

CIMBC sees impressive recent growth rate

The Coalition of Independent Mortgage Brokers of Canada [CIMBC] has significantly increased its membership in recent months, due in large part to tighter lending guidelines. New CIMBC members include the Orbis Mortgage Group, Pleco Capital, Homewise Solutions, RockStar Mortgage Services, Freedom Lending and Mortgage Allies. “With all the changes and challenges in the market, I have a much broader range of products due to my affiliation with CIMBC,” Orbis’ Teddy Kyres said of his decision to align with the network.

the broker has a phone call with the prospective client, Iannacito briefs and coaches them.

Iannacito stresses that there are no quick fixes, so he only consults with brokers who are willing to commit to his system. Tracy Spooner of DLC Spooner Financial was one such broker; although she had built her business entirely on referrals, she’s found her foray into marketing to be worthwhile.

“The Facebook ads are direct leads – people are looking specifically for what you’re advertising, so they turn into transactions a lot faster,” Spooner says. “Since we started a marketing plan, I’ve noticed a good increase in my business and more closed deals.”

Ontario’s top DLC brokerages convene

DLC Ontario’s Gaining the Edge conference in June brought together agents, brokers and owners from the province’s top-performing DLC franchises, along with lenders, insurers and other partners, to share best practices and learn from each other. Among the issues discussed was file efficiency. “One issue for lenders is getting files finished in a reasonable amount of time,” conference creator Don Stoddart said. “They support us, and have for some time, because they know we’re improving their efficiencies at the same time.”

14 www.mortgagebrokernews.ca

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9/08/2018 5:51:49 AM

Q&A

Jerry Lo

Helping brokers navigate a tough market

Network leader

How has Broker ONE been doing recently?

BROKER ONE

Years in the industry 20+ Fast fact Before joining Broker ONE, Lo spent 18 years working for fintech giant Finastra

After acquiring RMA and RMAI in 2016 and creating the Broker ONE brand, under which both Broker Financial Group and Real Mortgage Associates now sit, it has been a constant journey of growth and reinvention for our leadership team.

By design, we have been fairly quiet, being laserfocused on building our leadership, partnerships, our strategy and defining our culture. It’s important that we define ourselves and our niche. We don’t spend much time focusing on our mortgage broker competition because we all know the real competition isn’t each other; it’s the buying habits of the consumer. But knowing what our real challenges are, and knowing where and how to focus on tackling them, has been one of our strengths this past year.

What industry issues have had the greatest impact upon your brokers’ clients?

The finance minister’s set of measures to stabilize the housing market has led to a sharp slowdown in housing sales. Client affordability has obviously diminished. The new rules essentially mean they have to prove they can afford a mortgage payment based on the BoC’s posted rate. This so-called ‘qualification rate’ can make or break many prospective homeowners. This will either lead borrowers to smaller mortgages or out of the housing market entirely.

What is Broker ONE’s role in today’s market environment of tighter mortgage rules and progressively higher interest rates?

First Foundation inks deal with university

Alberta-based First Foundation has launched an affinity program with the University of Alberta Alumni Association that will give the brokerage access to about 280,000 alumni nationwide. “We think it will have a measurable impact on our sales, and we think this opportunity to do this with the university over the long-term is fantastic,” said founder and CEO Gord McCallum, an alumnus of the institution. “Each mortgage sold goes to benefit the alumni service and scholarship programs and the hiring of U of A alumni and co-op students.”

We have taken a proactive role in identifying stable lenders that have a broad range of underwriting guidelines to help our brokers find a suitable mortgage for their clients. One of our biggest initiatives this year has been building a full-service contact centre that professionally assists our brokers with inbound and outbound marketing campaigns to both their existing client base and social media. We have exclusive lead-generation programs that provide our brokers and agents with a constant flow of leads.

Our role is to aid our brokers in assisting their clients in navigating these difficult waters. We do this by offering human support, technology tools and leadership with deep relationships in the marketplace.

We also provide education and mentorship as needed, but in the end, our role does not change. We are here to help our brokers do better business, more business and constant business, and ensure we take any unnecessary workload or stress off their plates so they can focus on sourcing and closing.

What advice would you provide to brokers who are just starting out and are unsure of what they should look for in a network?

Know your business. Invest the time in understanding who you are as a broker, what your niche is and what challenges you are faced with. Knowing is half the battle, as they say. When you know what you need, it’s easier to find a national brand that fits you. Bigger is not always better, and smaller may not be for you, but you should never compromise on who you are and what your needs are. We as national brands should ‘fit’ you.

B-20 has made brokering in Vancouver harder

According to an analysis by Simon Fraser University professor Andy Yan, the median Vancouver home costs 11 times the median household income, making the city’s real estate market North America’s most expensive. That lack of affordability, coupled with the new B-20 rules, have made brokering a mortgage in the city difficult, says Mortgage Pal’s D’Arcy Henneberry.

“It depends on the reach you have as a mortgage broker, the quality of your client and the opportunities you have as a broker with respect to lender options,” he said.

Partnerships with Realtors key to brokers’ survival

Mortgage professionals aren’t always keen to work with Realtors, but Lorne Andrews, broker/owner of DLC Expert Financial, believes it’s a worthwhile endeavour for both sides. His brokerage has built a large part of its business on diversification into the real estate industry, providing tools like agent marketing systems, websites, lead-gen tools and more to Realtors willing to partner up.

“We give the Realtor the tools and ability to help their client, and that helps the industry as a whole,” Andrews said.

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9/08/2018 5:51:51 AM

UPFRONT

OPINION

GOT AN OPINION THAT COUNTS? Email mortgagebrokernews@kmimedia.ca

The best of intentions The CSA’s new syndicated mortgage proposal reveals a startling lack of understanding about how brokers handle these mortgages, writes Samantha Gale IN MARCH, the Canadian Securities Administrators published proposed changes to the regulatory framework for syndicated mortgages in Canada, intended to harmonize syndicated mortgage regulation across provinces. The simplified gist of the proposal is to transfer the regulation of syndicated mortgages from mortgage broker regulators to securities regulators. Rather than have mortgage brokers arrange syndicated mortgages for investor-lenders, registrants under the various provincial securities acts – primarily exempt market dealers [EMDs] – would sell syndicated mortgages to purchasers.

Sounds like a well intended plan. Who doesn’t want to have a strong syndicated mortgage sector, where the bad actors are weeded out and the public is well served with stricter compliance rules?

One problem with the CSA consultation: It has everyone jumping into the weeds without any idea of how mucky the foundation underlying the proposal is. The concept of security regulators regulating mortgage transactions is more than problematic. It creates an unworkable system that will not serve anyone – neither borrowers, lenders nor the industry.

The proposal commentators who understand mortgage brokering fully recognize this problem; however, those on the securities side, including the CSA, don’t appear to have any appreciation of these challenges.

In a typical syndicated mortgage transaction, a borrower will contact a mortgage broker looking for financing. The mort-

16

gage broker will take an application from the borrower and shop the application to different lenders, which are represented by other mortgage brokers.

Mortgage brokers acting for lenders are more than salespeople. The lender’s mortgage broker typically will underwrite the mortgage; inspect the property, appraisal, and other property information; issue a commitment letter for the borrower; determine conditions for completion and ensure

gage lending, mortgage brokers acting for lenders do not sell investments; they arrange, negotiate, structure, confirm and process the mortgage transaction on behalf of the investor-lender. If the lenders are no longer assisted by mortgage brokers, but instead

by EMDs, will the EMDs be required to underwrite the mortgage, draft the mortgage commitment, ensure that mortgage commitment conditions have been satisfied, ensure that the mortgage is registered appropriately before authorizing the release of lender funds, and inspect development sites to determine whether draws are appropriate?

Will they be educated, trained and tested for competence in all matters relating to mortgage financing, including those matters specified above?

The CSA proposal also identifies borrowers in syndicated mortgage transactions as ‘issuers’ who would need to comply with the requirements of the Securities Act. However, mortgage borrowers are considered under mortgage broker regimes to be consumers deserving of consumer protection measures, not industry members who must dispense consumer protection to others. To cata-

“Everyone is jumping into the weeds without any idea of how mucky the foundation underlying the proposal is” those conditions have been satisfied; prepare a lender disclosure that states mortgage and transaction details; and, for draw mortgages, ensure that work has been completed before further draws are authorized.

The CSA proposal appears to assume that a mortgage broker will still be involved in syndicated mortgage transactions, but it’s not clear exactly how. Will a mortgage broker representing a borrower looking for syndicated funds contact an EMD who has investors, and who will then provide a mortgage commitment, work with the investors to clear off conditions and then close the transaction?

EMDs are described by the CSA as ‘sellers’ and investor-lenders as ‘purchasers.’

However, when it comes to syndicated mort-

pult the mortgage borrower from consumer to industry service provider is a serious consumer protection concern that requires urgent review.

It makes no sense for EMDs to turn into syndicated mortgage brokers when mortgage brokers already take care of the investor.

If the CSA intends to proceed with its proposal, then it needs to develop an in-depth understanding of the mortgage origination process and explain how these gaps in the process will be filled by EMDs. Samantha Gale is the CEO of the CMBA-BC and serves as executive director of its umbrella organization, CMBA. Previously, Gale practiced law prior to a 15-year stint at FICOM.

www.mortgagebrokernews.ca

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9/08/2018 AMPM 14/03/20185:53:20 10:57:15

PEOPLE

INDUSTRY ICON

GAME CHANGER Since founding the M3 Group in 2015, Luc Bernard has grown it into one of the largest mortgage networks in the country

LUC BERNARD is a true visionary who has changed the Canadian mortgage industry landscape in less than four years. As chairman and CEO of the M3 Group, which he founded in 2015, Bernard’s uncanny ability to identify tailwinds has enabled a relative newcomer to the industry to grow into one of its largest networks.

“The intent from the beginning was to build the biggest, strongest and most relevant organization in the broker space,” Bernard says. “It was part of the plan from day one.”

After a financial services career that spanned everything from property & casualty and life insurance to banking and wealth management, Bernard cottoned on to the fact that the mortgage industry was going through some growing pains.

“It was clear from my period in the banking world that there was a window of opportunity because it was a very fragmented market,” he says. “Consumer behaviour was shifting quite rapidly. Five years ago, the banking industry still believed branches were relevant for consumers, and it’s still the case, but less and less. It was clear to me in 2014 that consumer behaviour was going in an interesting direction that would allow us to be relevant to brokers.”

Officially opening for business in January 2015, M3 made digitalization a high priority from the start, as Bernard believed it would

18

allow both mortgage brokers and consumers to reap great benefits. He was convinced then, as he remains today, that data and technology would upend the industry and dictate the way it would evolve.

“First we defined a strategic plan, and then we started investing in technology massively, making sure we provide brokers with the best technology around,” Bernard says. “We’re not

company’s business plan is predicated upon four pillars, and digitalization is only one of these.

“The first horizontal pillar was operational excellence, which refers to data processes and technology,” Bernard explains. “Really, this is the foundation of our group. The first vertical pillar that sits on that horizontal pillar is getting scale. Scales really matter in our business because

“The intent from the beginning was to build the biggest, strongest and most relevant organization in the broker space. It was part of the plan from day one” just competing with the best solutions in the broker space; we have to make sure that our brokers have access to the best technology in the financial services world. Our consumers, for instance, use Amazon and have standards that are quite high, so we have to please our consumers who are used to that level of IT integration.”

Ready, set, grow Technology isn’t the sole factor behind M3’s accelerated growth trajectory, though. The

they provide us the capacity to invest in technology in branding and marketing.”

In just over three years in operation, the M3 Group has grown into one of the largest mortgage networks in the country, and its September 2017 acquisition of Verico, which grew its annual loan volumes from $25 billion to $44 billion, was a key piece.

“It was clear to us that we need to double, even triple, the size of our organization,” Bernard says. “We have been able to multiply by four,

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9/08/2018 5:53:40 AM

PROFILE Name: Luc Bernard Company: M3 Group Title: Founder, chairman and CEO Based in: Montreal Years in the industry: 35 Career highlight: “Creating the M3 Group and growing it from $10 billion to $44 billion in three years.”

Career lowlight: “As you can imagine, the financial crisis of 2008–09. At that time, I was with one of the big banks, and it was a learning experience because you have to take an organization and adapt it to the new normal. It was really challenging but very interesting, too.”

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9/08/2018 5:53:44 AM

PEOPLE

INDUSTRY ICON

half of it through acquisition and the other half through organic growth. In 2016, we achieved the acquisition of Invis Mortgage Intelligence, and in 2017 it was the acquisition Verico. That means we have a network composed of over 6,000 brokers.”

As impressive as that is, Bernard says M3 isn’t done growing yet.

“Our next ambition is to double the size of this organization over the next three years, to grow from $44 billion to $80 billion,” he says.

“Half of this growth will come from other acqui-

The next step That organic growth will be driven by M3’s understanding of the broker space and its efforts to get the word out to brokers about the benefits of joining the M3 network.

“Since day one, we’ve knocked on doors and met people in the broker space, showing our interest in buying their business, but most of it is giving them confidence in our team and strategic planning,” Bernard says. “That’s always been the most important thing for me – that people understand who we are, what we’re trying

“The reason we exist is quite simple. We believe in the ecosystem. We believe the broker is more essential than ever – this is why I left the banking industry and why we have strong value proposition for brokers” sitions. We’re confident there’s still place for consolidation in the market, and based on our DNA, there will be more banners interested in joining our group.”

The timing couldn’t be better. The latest changes to Guideline B-20 have been unanimously regarded by the mortgage industry as a spanner in the works, and it’s smaller independent brokerages that are really feeling the squeeze. While the new stress test cooled the housing market almost overnight, it did provide networks with an inadvertent boost.

“What happened with the B-20 rules is that a lot of independents are looking to partner with us,” Bernard says. “Smaller players are looking to come in, and we can offer a lot of support.

We’re obsessed with organic growth. Once the consolidation phase is over in the next two or three years, the organization that will emerge from this consolidation will support organic growth for the benefit of our brokers.”

20

to achieve and what the DNA of our group is.

That’s why we’ve been successful in our acquisitions, but organic growth is still important.

While there’s still room for consolidation in our industry, once that phase is completed, what matters to us and our brokers is being well equipped to compete with other distribution networks within the financial services. That’s why we have a strategic plan focused on data and technology.”

More than anything, Bernard has unwavering confidence in the value system he’s helped create for brokers, as well as the business model that allows companies in the M3 family to retain their autonomy.

“The reason we exist is quite simple,” he says. “We believe in the ecosystem. We believe the broker is more essential than ever – this is why I left the banking industry and why we have strong value proposition for brokers.”

LUC BERNARD’S CAREER HIGHLIGHTS 1980

1982 Begins his career in the insurance industry

1995 Becomes executive VP at Industrial Alliance Group 1990

2002 Becomes executive vice-president of retail, banking and SME at Laurentian Bank 2000

2012 Wins the Entrepreneur of the Year Award from Université du Québec à Montréal

2015 2010

Starts the M3 Group and becomes chairman and CEO

2017 Leads M3’s acquisition of Verico, which brings annual loan volumes to $44 billion

www.mortgagebrokernews.ca

18-21_Industry Icon-SUBBED.indd 20

9/08/2018 5:53:48 AM

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www.trezcapital.com

18-21_Industry Icon-SUBBED.indd 21

9/08/2018 5:53:50 AM

SPECIAL REPORT

COMMERCIAL LENDING GUIDE

COMMERCIAL LENDING GUIDE Leading commercial lenders reveal the opportunities and trends in today’s market – and the strategies all great commercial brokers should have in their arsenal LAST YEAR was a record-breaking one for Canadian commercial real estate – and 2018 shows no signs of slowing down. Commercial investment volume in this country hit $43.1 billion last year, making Canada one of four nations in the world to log back-to-back all-timehigh investment volumes, according to CBRE. With immigration, investment, employment and tourism expected to continue their upward trajectory, Canada’s economy is poised to remain a global leader in GDP growth, and the commercial real estate sector should follow suit.

For both veteran commercial brokers and new ones, this dynamic segment of the market is full of possibility, despite challenges such as rising interest rates. CMP connected with four commercial lenders to discuss the opportunities available to brokers in today’s market.

They also shared the key skills a broker needs to not just succeed, but stand out in a vast pool of professionals. Whether you’ve been in the commercial sector for decades or have just begun to entertain the idea of expanding your business, these lenders’ insights provide a valuable outlook on Canada’s commercial mortgage segment.

SPOTLIGHT: NATIONAL COMMERCIAL REAL ESTATE

INVESTMENT VOLUME – 2018 FORECAST

SQUARE FEET OF SPACE UNDER CONSTRUCTION 16 million 15 million 14 million

$9.97 billion

$9.27 billion

Office

Industrial

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15.04 million

13 million 12 million 11 million

10.94 million

10.90 million

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14.25 million

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5.99 million

4.59 million 2017

5.56 million

4.96 million 2018 (forecast) Source: 2018 Canadian Real Estate Market Outlook, CBRE

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9/08/2018 5:59:44 AM

STEVEN (SKIP) WALTERS Senior vice-president First Source Mortgage Corporation

CMP: How is the GTA market responding to the decrease in available land?

Skip Walters: Infill sites are going for a premium, and approved residential lots, ready to go, are gold. As a prudent lender, we look carefully at what the developer is paying per front foot and study the pro forma to ensure he has included all hard and soft costs. Then we analyze the profit margin. We know construction costs are rising, as is labour, since contractors can pick and choose jobs due to the increased work. As prudent lenders, we might deduct 8% to 10% of the profit off the top due to added costs, etc., to ensure profitability.

CMP: What are the major trends affecting the market today?

SW: Lenders are keeping a close eye on the BoC rate increases and are acting

according to floating rate structures. For instance, the rate on the commitment would likely state a rate of “the higher of 8.75% or CIBC prime + 5.05%.”

Lenders today are being cautiously optimistic. Values in general have risen exponentially over the past three to five years, and we have seen a pullback in values lately in most asset classes. Appraisals are being studied much more carefully and, in many instances, being questioned. Lenders are placing their own knowledgeable values on projects, using a higher cap rate, and are being a bit more conservative on their loan-to-values. The upward trend we have experienced has definitely stagnated and may continue to decline. Absorption is slowing in most asset classes, especially retail due to online sales. Stacked towns are still selling well, as are condos; however, townhome sales have slowed.

CMP: What’s the best way for a residential broker to transition into commercial mortgages?

SW: My sincere suggestion to transition

more than happy to take you through what they do, how they analyze a loan and the due diligence required to complete a loan transaction.

CMP: What are some of the misconceptions on the residential side about commercial mortgages?

SW: I think many residential brokers look at the fees paid out on a commercial loan and believe they can jump right in with both feet and earn the ‘big bucks.’

In fact, it takes years to truly understand an acquisition loan or a construction loan and to be a benefit to your client.

Lenders look at debt coverage, the existing tenancies, term, rates, building condition, financial statements, net worth, etc. Most importantly, lenders consider exit options should interest payments not be made or whether an institutional lender will be able to take out the loan at the end of the bridge loan.

Also, you need to familiarize yourself with the lending community and understand which lenders gravitate toward

“I think many residential brokers … believe they can jump right in with both feet and earn the ‘big bucks.’ In fact, it takes years to truly … be a benefit to your client” to commercial lending is to meet with some small developers, learn what they do, understand their pro forma and timelines, and look at comps of the asset class they are proposing to build. Ask yourself: “Does it make sense? Can they achieve the rental rates or sale prices?” Put yourself in the developer’s shoes. Determine the equity required and leverage required. Once you understand what goes into a development and the numbers behind it, you will better understand the financing required.

I also strongly suggest speaking to some alternative bridge lenders. Many are

specific loans and properties. Some lenders specialize in construction, while others specialize in income-producing loans with debt coverage. Others only service the GTA or only lend on land.

ABOUT SKIP WALTERS With experience spanning numerous areas of real estate, including commercial mortgage, construction and land lending, Steven (Skip) Walters is a senior vice-president at First Source Mortgage Corporation. A business graduate of Wilfred Laurier University, Walters is a licensed mortgage broker and has been actively working in real estate for over 25 years. He is currently a director of the Canadian Mortgage Brokers Association.

www.mortgagebrokernews.ca

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9/08/2018 5:59:48 AM

SPECIAL REPORT

COMMERCIAL LENDING GUIDE On the commercial side, we see opportunities around purchase and repurposing as more traditional office buildings refurbish to accommodate new ‘hoteling’ concepts and restructure to accommodate tech environments.

I’ll also be interested to see how the GTA, and frankly all the major centres in Canada, deal with the real estate issues that come out of the decline in traditional retail and the replacement demand for warehousing as we all move toward online shopping.

CMP: What are some of the major trends you see across Canada?

PM: We are seeing some market pullback, particularly in British Columbia. It’s all generated around where housing is going to be in the next few years. Toronto doesn’t seem to be as affected by the housing bubble, but in some of the larger centres in BC, we are seeing that there is pullback in the support for more multiresidential projects if you are at the raw land development stage.

On a positive note, we are seeing more lenders come back into Alberta on the commercial side. They are getting more and more comfortable that the Alberta economy has stabilized once again, and they’re interested in participating in that particular

PAUL MCGILL Founder and president The Financing Hub

CMP: From your perspective, what’s the current state of the market in the GTA? Paul McGill: There is no doubt the commercial market in the GTA remains strong. Clearly, multi-residential development is leading and will continue to lead the charge for some time to come.

I don’t think the decrease in available land in the GTA has at all dulled the volume, particularly with multi-residential development. It’s just a question of more site redevelopment.

market. We would like to see a few more of our lenders get active elsewhere in the Prairies for the same reasons.

Quebec remains an active market, well supported by those traditional lenders that have been financing that market for a long time. The Maritimes, unfortunately, is probably the least supported market we see in Canada. It suffers from the smaller population base and the liquidity problems that can arise around that. But that doesn’t mean there aren’t good projects to fund out East. We see them coming through The Financing Hub regularly.

CMP: Is there a unique area of the commercial market brokers should be aware of?

PM: Yes, we see a trend on the fringe of commercial mortgages that is certainly of interest to a lot of residential brokers, and that’s the whole issue of residential rental properties and where those will go. The residential pipeline is seeing a pullback in a lot of areas, but a key area is rental properties. People involved in that market are starting to explore the commercial funding side to see how residential rental properties can play into that market.

There are a lot of investors out there that own four, five or even 10 homes. The

Read Canadian Mortgage Professional anywhere, anytime

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FEATURES

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question is what to do with these small portfolios of rental properties. We are seeing some residential investors start to say: “Given the struggles I’m going to have acquiring the next home, should I take that effort and redirect it into smaller multi-family properties?” I think that’s a trend worth looking at right now. There are a lot of properties in the residential rental market and a lot of borrowers who need new answers. For both brokers and major lenders looking for new opportunities, I think that’s an area worth looking at right now.

CMP: What are some of the common missteps brokers make when dealing

“All too often, residential brokers will dip their toe in the water, and then they just don’t follow through” with commercial mortgages?

PM: There is a significant difference in terms of how one approaches residential versus commercial markets. The most consistent misconception we see is the reliance a broker will often put on the commercial borrower’s ability to repay outside of the project being funded. While it’s absolutely important to have a strong borrower, in commercial mortgages, the project itself must have an ability to repay

the mortgage before most lenders will give it serious consideration.

The work and degree of documentation that one takes on when working a commercial transaction is quite unlike residential. While it’s all learnable, we find that all too often, residential brokers will dip their toe in the water, and then just don’t follow through far enough to gain the experience and knowledge they need to make a go at it in commercial, and that’s a real shame.

Email lender notes, application, and credit bureaus to:

deals@vwrcapital.com D IMITRI K OSTUROS

Chief Operating Officer dimitri@vwrcapital.com

P AULA H UTTON

BDM - Prairies paula@vwrcapital.com

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE non-bank commercial lender, and our volumes have really risen in Canada because the banks are tightening up on many of their standardized commercial lending programs. Romspen only handles large deals, where our only competition comes from larger financial institutions.

However, construction lending has become much tighter from these sources due to capital constraints and geographical

BLAKE CASSIDY Managing partner Romspen

CMP: How has the commercial market changed in the past 12 to 24 months?

Blake Cassidy: I think that over the last 12 to 24 months, we have seen an amplification in the volume of deals that are available. We are a private,

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that are unique, unusual or have, as we say in the industry, “a little hair on them” can lead to a lot of opportunity for brokers, because then it is really about identifying the lenders for niches that the banks are underservicing. Borrowers know where the bank money is; they don’t know where the alternative sources of capital are, so that’s where a broker can step in when the banks say no.

“It’s so important that a broker brings the highest level of integrity and honesty to the transaction so that we don’t waste time going down one rabbit hole when we could be finding another solution” concentration. This has made it made it more challenging for the banks to participate, which has led to opportunities for us as an out-of-the-box-thinking alternative lender.

CMP: Where are the opportunities in the market?

BC: Anything that is a little unconventional is considered a little hard to place. Deals

CMP: What are the key strategies for residential brokers transitioning into commercial?

BC: In the residential space, banks pay brokers for their referrals; however, on the commercial side, there is no such payment. In a standard commercial transaction, a borrower can go directly to a bank or financial institution. For the broker, the opportunity lies in identifying

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areas that are outside of the bank lending sphere, where the broker can create value for the borrower by introducing them to an alternative lender like Romspen that might otherwise be unknown to them.

To succeed, a broker needs to do their homework to understand which lenders work in the alternative space, what areas they service, what kinds of transactions they do and what level of complexity. They must then understand the borrowers’ needs in order to match them with the right lender. Relationships are key – it helps to find a lender you know, like and trust. At Romspen, we protect all our brokers; we build the brokerage fee right into the letter of intent and commitment,

and we pay the broker from our trust account. For an ambitious, successful broker, the rewards can be rich – we recently completed a transaction where the broker earned just shy of $1 million in fees for the one deal.

CMP: What else do brokers need to know to succeed in commercial mortgages?

BC: It’s important for brokers to have the highest level of integrity when dealing with commercial transactions.

It’s very important that we don’t waste time with misinformation. Sometimes a borrower might be misleading or not give full disclosure, so if the broker knows

something, they need to tell us upfront, because you can be sure we’ll find out as the deal is underwritten.

Time is often the most valuable commodity a lender has; deals can be complicated transactions that are intensely time-consuming and, in many instances, time-sensitive. It’s so important that a broker brings the highest level of integrity and honesty to the transaction so that we don’t waste time going down one rabbit hole when we could be finding another solution. We are going to do our homework so we understand the deal from top to bottom, and the sooner you help us get there, the sooner we can get a cheque for the borrower and fees to the broker.

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SPECIAL REPORT

COMMERCIAL LENDING GUIDE CMP: How can residential brokers transition into commercial?

GV: There is hesitancy to look for opportunities in commercial, and a way to overcome that is to become affiliated with a firm or people within a firm who specialize and are experts in commercial mortgage brokering, from whom brokers can learn and gain experience. As a result, they can gain the confidence needed to become a successful broker within commercial lending.

If you’re in residential and are successful in residential, you’re probably a pretty good salesperson. The most effective salespeople on the commercial side are those who couple strong financial analytical skills with great ‘salespersonship.’ They are able to dissect the pro forma or projected cash flows for commercial financings, distill them

GREG VORWALLER President Trez Capital

CMP: What has changed in the commercial space in the past 12 months?

Greg Vorwaller: While capital remains as plentiful as last year, interest rates have risen, adding to the cost of borrowing. As lenders, we need to be acutely aware of the risks relative to pricing.

What is interesting is that borrowers are coming to us to compensate for the rise in rates by asking for more loan proceeds, which then puts challenges on some of the litmus tests for loans.

With a ‘push’ on LTC, LTV and DSCR metrics, you have to ensure you really understand the merits of the deal – the quality of sponsorship, the business strategy and the corresponding means of exit. In summary, not much has changed other than the fact that the rise in rates has accentuated the requirements associated with the thorough and exhaustive underwriting of deals.

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to look at financing opportunities and position them effectively.

CMP: What are the qualities of a standout commercial broker?

GV: As I stated before, the most effective are those who couple strong financial analytical acumen with great sales skills. They know their clients, the markets, the numbers and the lender audience they are appealing to for their clients. They are students of the marketplace and know how to appeal to active lenders based on what their respective criteria might be at any point in time. The really successful brokers we’ve seen are the ones who serve as an adjunct to the borrower’s staff, giving advice and counsel on all the underwriting materials and documents required by lenders.

“The really successful brokers we’ve seen are the ones who serve as an adjunct to the borrower’s staff, giving advice and counsel on all the underwriting materials and documents required by lenders” to their essence and position them in a way that they’re able to go into the marketplace on behalf of their clients to procure the desired financing.

CMP: What type of educational background is needed to succeed in commercial lending?

GV: Residential brokers should possess the baseline analytical competencies that are required to really succeed in the commercial space. From an educational perspective, at the core would be knowledge of finance and corporate finance, in addition to the different measures that are used to understand commercial real estate: discounted cash flows, cap rates, coverage ratios, etc. All of these things ultimately convert into how commercial brokers need

CMP: Where are the market opportunities today?

GV: In Canada and the US, because of the tremendous supply of capital that is available for investment in real estate, the general sentiment is that values across property sectors are fairly priced.

Notwithstanding some of the press around the softening of existing home sales and pricing for attached ‘for sale’ residential and new multi-family builds, we still see healthy levels of demand for entry- to mid-level housing. So, we continue to see goodquality opportunities that possess these characteristics. We also see opportunities for repurposing non-residential into mixed-use or to upgrade older-generation office and industrial space to correspond to changing demands in the market.

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License # 10172

Romspen Investment Corporation is a non-bank mortgage lender specializing in commercial real estate across Canada and the United States. With over $2.2 billion under administration, we offer customized mortgage solutions for term, bridge and construction financing from $4M to $100M.

YOU ENVISION. WE ENABLE. Blake Cassidy or Pierre Leonard 800 494 0389 www.romspen.com

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SPECIAL PROMOTIONAL FEATURE

COMMERCIAL SERIES

To insure or not to insure?

CMHC-insured mortgages are an option in the commercial space, too. The Financing Hub’s Paul McGill spoke to lenders to find out when and why brokers might want to consider them

CHANGES IN the mortgage market might have reduced the availability of CMHC insurance for residential applications, but it’s still an option for many commercial deals. CMHC insurance and the low-rate fundings those coverage certificates attract have been a staple of the multi-family residential market for years. While changes are ongoing for CMHC

gages for First National Financial; George Mejury, senior director of corporate accounts for MCAP Financial; and Laurianne Gruzas, CMHC placement specialist for Mortgage Alliance Commercial Canada.

What struck me while speaking to them was that although these three experts come from different experiences, they all made

CMHC commercial placements are reliable, long-term and very stable – not a bad thing to have when trying to find funds for your clients’ projects residential coverage, CMHC’s commercial policies have remained stable throughout.

As on the residential side, CMHC can be a very effective commercial funding tool.

Used in the right circumstances, it adds years of benefits for the borrower. But just like in residential financing, it’s not the right answer every time.

To find out when that right time is, I spoke to three experts in CMHC commercial placements: Alessia Di Geso, business development manager for commercial mort-

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similar points. What I walked away with is the confirmation that CMHC commercial placements are reliable, long-term and very stable – not a bad thing to have when trying to find funds for your clients’ projects. Here’s what the experts told me.

Which deals are best suited for CMHC insurance?

First, remember that CMHC is a government agency with a mandate to support housing across Canada. The commercial activities

tend to follow that mandate, supporting a wide range of multi-family rental properties, student housing, social housing and seniors’ residences. Where your borrowers are looking to fund the long-term hold of a multi-family rental property that fits into any of the categories above, CMHC insurance should be considered.

Both Mejury and Di Geso emphasized that in order to maximize the benefits of the CMHC insurance support, the borrower

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THOUGHTS FROM THE EXPERTS George Mejury of MCAP pointed out that CMHCinsured mortgages aren’t just for the major centres. If you have multi-family properties in St. Johns, Thunder Bay, Medicine Hat or Vernon, all will be welcomed. In fact, most population centres of 10,000 or more are eligible for CMHC commercial insurance.

Alessia Di Geso from First National discussed the value of working with an experienced underwriter, particularly in an upward-moving rate environment. As the ultimate rate for a typical CMHC-insured mortgage is tied to government bond rates, having a funder who can execute effectively can often make a real difference in the rates your borrower ultimately attracts.

should ensure they plan to hold the rental property for at least five years. CMHC will consider amortization terms of 25 years, with options that can take the amortization through to 40 years. Given the ability to hold the insurance in place over the full term of the amortization, the longer the borrower holds that property, the more the rate benefits will outstrip any initial upfront costs of the insurance.

CMHC also wants to know that the

borrower has the ability to come through for them. To do this, CMHC takes an approach to underwriting not unlike a potential investor might. Typical CMHC underwriting looks at rental rates – not just to see what revenues the building currently generates, but to also to compare those stated rental rates to others in the area. Effectively, CMHC is confirming whether the building is competitive. The same is true for costs such as utilities, maintenance and property management.

Laurianne Gruzas from Mortgage Alliance Commercial talked about the borrower experience – a key requirement for the CMHC application. If your borrower can’t demonstrate five-plus years of direct property management experience, CMHC may require a professional property manager to be brought in.

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SPECIAL PROMOTIONAL FEATURE

COMMERCIAL SERIES CMHC will use may not be as high as what a commercial valuation might state. In less volatile markets, this is less of a factor.

The broker’s role

In order to maximize the benefits of the CMHC insurance support, the borrower should ensure they plan to hold the rental property for at least five years Also, where there is a revenue or cost factor that is outside the norm (whether positive or negative), the underwriting process might include a ‘what if ’ analysis to see the property’s results when that item is normalized. A good example of this is property management. If a borrower is doing their own property management and not charging market rates for the service, a market standard fee will be applied to see what the outcome would be if they were to start outsourcing this service.

A critical factor all of our experts brought

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up was that when dealing with CMHC underwriting, the property value or lending value as determined by CMHC is based on an income-approach calculation. For those not familiar with an income-approach valuation, it is derived from the revenue and cost factors coming from the building and doesn’t involve the market comparables typically used in both residential and commercial appraisals.

This means that for properties in hot markets like Vancouver or Toronto, where market demand can drive values in excess of the income approach, the property values

While all of this might seem like it makes the CMHC option less competitive, in reality, the deductibility and/or capitalization of insurance and underwriting fees are offset by the long-term rate benefits. In addition, potentially lower lending values can be more than offset by LTVs that can be as high as 85%, funding is accessible in smaller population centres, and there’s the potential for limited or even no-borrower guarantees for lower LTVs. It’s important that you as the broker look at the combined effect and present the best advice to your clients.

CMHC underwriting is a very technical exercise. To apply for a CMHC-insured mortgage, you must always go through a CMHC correspondent. Each of the firms our three experts are with can help you. We here at The Financing Hub also have a correspondent option to help you.

Also keep in mind that it’s not a quick close.

A typical CMHC placement will typically take three or more weeks, depending on the property and the borrower’s experience.

CMHC placement can not only be a major benefit to your borrowers – again, in the right circumstances – but the process of placing a CMHC-insured transaction is also a great exercise for you as the mortgage broker. It gives you an insight into a relatively sophisticated commercial underwriting process that mirrors how investors look at properties, which is invaluable if you plan to be in this business.

Let me close by thanking each of our experts for their help in putting this article together. For those of you looking for more information, we’d be happy to help you. Feel free to get in touch with us at support@ thefinancinghub.com.

Paul McGill is president of The Financing Hub, which is dedicated to delivering effective digital solutions for commercial real estate financing.

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More Options. More Lenders. More Solutions.

The Financing Hub Brings Online Technology to the Commercial Mortgage Application Process Discover More:

www.TheFinancingHub.com In exclusive partnership with MERIX Financial

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PEOPLE

BROKER INSIGHT

A woman of influence Sabeena Bubber tells CMP how she has been able to help more than 2,700 clients secure mortgages in her decade and a half as a broker

CMP: What made you first get into the mortgage broker industry?

Sabeena Bubber: I’ve been in the industry

What have been some of the biggest challenges you’ve faced?

SB: It’s so much harder to do my job now

since I graduated from university with a commerce degree. I started out at a finance company with a heavy sales culture, and it taught me everything I needed to know about management and credit. Working there, and the work ethic I learned, gave me the basis I needed to become a mortgage broker.

I’ve been in the finance industry for 24 years and have been a mortgage broker for 15 of those. After working at the finance company, I worked as an underwriter for a subprime company. Then I came into mortgage brokering in 2004.

than it ever was. We are being forced to constantly relearn everything and understand how every change affects our clients.

It’s also about seizing that opportunity, despite all of the changes and ups and downs we have faced.

The opportunity for us has been in growth, because ultimately, we have become the best advice for our clients. The banks can’t necessarily answer all of the questions because they are not the only option anymore. Consumers are becoming more savvy to the fact that brokers do exist and can provide better advice and more longer-term relationships than the banks.

CMP: How would you describe your time in the industry?

SB: It was hard when I first came into the business. As a new mortgage broker, no one really wants to give you the time because they don’t know your potential. There’s a lot of stuff you just have to figure out on your own, like how to package deals, how to build client relationships and provide proper advice.

In the beginning that was challenging, but after a lot of learning and finding the right mentors, I started to have success. The last 10 years have been amazing.

CMP: You’ve operated during a tumultuous period for the industry.

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CMP: What markets do you focus on, and how has business been for you this year?

SB: I primarily focus on British Columbia,

and business has been challenging because the Vancouver market has taken a hit, especially in the detached homes segment. It has been tough because a lot of people are now struggling to qualify. First-time buyers trying to get into the market are struggling to understand that they may never be able to get into the market here because of the rule changes. Home-buying opportunities just aren’t present for them. At the same time, the rate specials being offered by the banks lately are creating opportunities to help existing clients. So it has been a mixed bag.

CMP: What does it mean to you to be among CMP’s Top 75 Brokers and Women of Influence?

SB: It really means a lot to receive those accolades. Being named a Woman of Influence was especially big for me. After not feeling supported at the beginning of my time in the business, it has become my mission to try to not let other people feel so alone. I

BUBBER’S TIPS FOR OTHER BROKERS “Consistency is extremely important, especially consistency in following up with the referral sources you have because you may only ever get one or two referrals from people as they grow their businesses. So keep growing your referral sources.

It’s also important to create and work on your database from a very early stage because that is going to be your gold mine. Be sure to stay in touch with your database from day one – that is critical.”

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FAST FACTS: SABEENA BUBBER

Has been a mortgage broker since 2004

Works at Verico Xeva Mortgage on Vancouver’s North Shore

Has helped more than 2,700 clients borrow over $675 million

Named to CMP ’s Top 75 Brokers and Woman of Influence lists numerous times

“After not feeling supported at the beginning of my time in the business, it has become my mission to try to not let other people feel so alone” try to provide that support, and getting that recognition from CMP meant a lot to me. It validated that I have been doing the right thing and helping the right people.

CMP: How have you been able to keep growing your business?

SB: Hard work, determination and wanting

to be a positive influence for my two daughters. I wanted to show them that they have the capability to do anything if they set their mind to it. I want to show them that success can be defined in numerous ways, as long as you’re making a positive difference in the lives of others and doing it with high integrity.

Finalist for Mortgage Broker of the Year at the Canadian Mortgage Awards in 2015 and 2016

Certified coach in neurolinguistic programming and certified in time line therapy

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FEATURES

MANAGEMENT

Five ways to become an inspirational manager Inspired employees are productive employees.

Aaron Hurst offers five tips for spurring your team to greatness

WE HAVE known for a long time that having engaged team members is better than having people who are simply satisfied. Engaged employees are 44% more productive – that’s like adding a part-time person to your team at no additional cost.

According to Bain & Company, however, it looks like engagement is too low a bar. It turns out that inspired employees are 125% more productive than satisfied ones. That’s like adding more than one full-time person to your team.

Why is inspiration so powerful?

When we are inspired, we are releasing serotonin and dopamine, two of the most critical neurochemicals. They are deeply connected to our well-being and energy.

Serotonin makes us feel significant and important, while dopamine motivates us to act to achieve goals and gain a sense of progress.

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They are the fuel behind the fire that boosts productivity by an incredible amount.

My grandfather, JE Slater, intuitively understood the power of inspiration. His advice to us growing up was to “always keep exhilaration in front of exhaustion.” I can remember very few moments with him where he wasn’t in a state of inspiration. He was always full of joy, wonder, momentum and energy.

Like my grandfather, I am nearly always exhilarated at work. I wasn’t always that way – it was something I had to learn and develop.

I have been researching and experimenting with it for more than 20 years. Here’s what I’ve learned about how to help people be inspired:

1

the destination may be far away, if we believe in it and want it, we can be exhilarated by making measurable progress toward it.

2

See the superhero in people

3

Let people grow and fail

My friend Tara Russell is an inspiring manager. When I see her working with her team, you can feel the energy and exhilaration. She takes the time to see the potential in people and to help them see it.

When you’re around someone who sees you for who you are and who you can become, it is inspiring. It gives you a sense of significance, which produces serotonin, but also gives you a sense of hope and anticipation for the future (our friend dopamine again).

Define a shared purpose

While we gain meaning from the journey, what inspires us is usually the dopamine-producing pleasure of seeing ourselves make progress toward a goal. While

It’s a cliché at this point, but it’s an important one: Give people permission to fail.

This isn’t just to drive innovation, but also the

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When we are inspired, we are releasing serotonin and dopamine, two of the most critical neurochemicals. They are deeply connected to our well-being and energy experience of taking risks, which is thrilling and inspiring. When you ask people about the manager who most consistently inspired them, they almost always point to the one who believed in them enough to push them out of their comfort zone.

4

Cultivate curiosity

Most of my inspiration comes from being curious. It isn’t doing anything or making any impact. It is self-generated and is 100% in my head. I just love asking “What if?” all the time.

I read for at least an hour every day and am always looking to uncover new research and then spend days playing with possible implications and applications. I learn about business models and wonder what it would look like to superimpose that model on a totally different business in a different industry. What if what we assume is true isn’t?

As managers, we can encourage building habits that provoke curiosity. The trick is to find out what triggers curiosity for each person. It is usually ultimately tied to the person’s psychological purpose drivers.

5

Celebrate inspiration

In my book, The Purpose Economy, I share the nightly practice that Jennifer McCrae has built with her family. At dinner, rather than ask her kids what they learned at school, she asks them to share one thing that moved or inspired them.

I have adopted this practice in my office during our team meetings. It helps us to see the abundance of sources for inspiration all around us if we are just open to it.

Aaron Hurst is the foremost expert on the science of purpose at work. In 2014, he brought global awareness to the rise of the fourth economic era in history, the purpose economy. He is the author of The Purpose Economy: How Your Desire for Impact, Personal Growth and Community Is Changing the World and the co-founder and CEO of Imperative, the technology platform for leaders in the new economy. For more information, visit imperative.com.

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PEOPLE

CAREER PATH

TAKING CHARGE

Jason Georgopoulos has always had the drive to be his own boss – and today he’s living the dream At the age of 15, Georgopoulos got his first shot at running the show when he was put in charge of the gas station where he worked after school and on the weekends “Even though I made more money [at my other job], I appreciated the entire experience of running the gas station; I wanted to be my own boss, to use my work ethic to get ahead”

1994

GETS A TASTE OF RESPONSIBILITY

2001

GRABS AN OPPORTUNITY In his final year of university, Georgopoulos was approached by a former colleague who was starting a mortgage unit at CIBC. Impressed by Georgopoulos’ work ethic, the colleague offered him a job on the spot “Two months before I was supposed to finish school, I was already skipping class to start my working life. I wanted to grab that opportunity, even if it meant phoning it in at school to make sure I finished”

“I hated the job, but I was a born salesman.

I learned how to overcome objections – I still use that today” 2004

LEADS THE TEAM One of CIBC’s top salespeople, Georgopoulos was rewarded with the post of team leader “That position didn’t even exist before; that was my first taste of being rewarded.

I thrived on the commission structure; it kept me hungry. If I hit out of the park, which I knew I could, I wanted to be compensated for it”

2006

While still at CIBC, Georgopoulos and a partner connected with renowned condo developer Brad Lamb, whom they heard was floating the idea of opening a mortgage company. The two booked a meeting to pitch Lamb on their idea for King West Financial and were hired on the spot “We made the opportunity. He was impressed, he said, ‘Let’s do this,’ and we were handing in our resignation letters to CIBC a few weeks later”

STRIVES FOR BALANCE With a clutch of awards on his shelf and 10 successful years as a franchisee under his belt, Georgopoulos, now a father of three, has turned his attention to the best things in life “There’s more to life than numbers and mortgages.

I’ve reached a point I’m very happy with. These days, I try to stop and smell the roses”

HITS THE PHONES

Through most of university, Georgopoulos earned his “beer money” by working as a telemarketer, selling mortgages to renters – an experience he credits with giving him better training for his future career than his political science degree

IS HIRED ON THE SPOT (AGAIN)

2018

1999

2008

STRIKES OUT ON HIS OWN After two years as part of a larger operation, Georgopoulos decided to open his own shop when he was approached by DLC with the offer of a franchise “The decision to go with DLC was more about ego than anything – the only thing DLC offered me that I didn’t already have was ownership. I was young and very ambitious; I wanted to do it for myself, not someone else”

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PEOPLE

OTHER LIFE

TELL US ABOUT YOUR OTHER LIFE Email mortgagebrokernews@kmimedia.ca

TAKING TO THE ICE Vancouver broker Geoff Lee is no stranger to strapping on skates for a good cause GEOFF LEE didn’t start playing hockey until he was 18 and old enough to cover the costs himself – so it seems fitting that the funds raised by the Vancouver-based senior mortgage director during his annual involvement with the Hockey Marathon of Hope go to children in need.

The event – a one-day tournament in which four teams play each other in an eight-game round robin over the course of 10 hours – last year raised north of $100,000, which was split equally between the nonprofit Doing Family Right and Imani Orphan Care, the Kenyan orphanage that Lee and his wife have been financing since 2008.

The costs of caring for the almost 100 children at Imani (which means ‘faith’ in Swahili) average around $10,000 a month, so fundraising is a yearround affair for Lee, but “I have been so blessed by giving back,” he says. “Good things happen to good people – givers gain.”

7 a.m.

Starting time for the Hockey Marathon of Hope

64

Number of players at each event

The fundraising commitment required to play in the Hockey Marathon of Hope is $1,000 per player

3

Target number of monthly sponsorships per child

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