Location: Kelowna
Loan type: Commercial mortgage secured by income-producing property
Property type: Mixed retail/office
Total loan size: $6,400,000
Lender: Credit union
Primary goals achieved: Additional leverage, Lower costs
Lakepoint was referred an opportunity from a chartered banker.
Backstory: This bank had funded the acquisition of a retail commercial property in 2015, and had subsequently refinanced the property in 2021 to provide the client with approximately $1.5 million dollars in additional equity at that time.
The loan was coming up for renewal, and because of the overall increase in rates since 2021, the bank was asking the client to now pay down the loan from approximately $6.5 million to $6.0 million, to bring the debt service ratio back in line with internal metrics.
The client, a high net worth family, was concurrently developing a purpose-built rental project in Vancouver which was requiring most of their available cash reserves. While they could have liquidated some equity investments to pay down the loan, their investment portfolios were generating very positive returns, and selling investments would both incur an opportunity cost and substantial taxable gains.
Instead, they engaged Lakepoint to secure the best possible financing in the market. For this client, the best financing meant the highest amount of leverage combined with the most favorable rates and fees, with preference towards the higher leverage.
Lakepoint put a detailed request package together and circulated it amongst eight different institutional lenders. Each lender received the same confidential information package on the same date.
All of the lenders were interested in financing the property, however, the dollar range of offers from the group of lenders was staggering. While most lenders offered around $5.7 million to $5.8 million, one lender (which actually had the best rates) came in at $5.5 million. Compared to these offers, $6.0 million seemed pretty good. However, Lakepoint was able to secure an offer for $6.4 million with very competitive pricing, and another at $6.1 million.
This lender was able to offer $6.4 million because they were comfortable using a 30 year amortization on a building that most of the market was only comfortable financing over a 20 or 25 year amortization. No additional security or collateral was required other than the property itself. The longer amortization, combined with more relaxed underwriting criteria and very strong rates allowed this lender to come in $900,000 higher than one of its competitors, and $500,000 to $600,000 higher than most others.
Needless to say, the client was thrilled with the outcome that Lakepoint helped create, and ultimately retained $370,000 in capital that would have otherwise been required had they stayed with their incumbent lender.
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