REAL ESTATE FINANCING SUMMIT

Conference held in Toronto on June 21, 22 & 23, 2005
Chairs: Jim Hilton, Blake, Cassels & Graydon LLP; Jeffrey W. Lem, Davies Ward Phillips & Vineberg LLP; D.G. (Don) Matthews, L.J. Melody & Company; J. Michael Knowlton, Dundee REIT

CD-ROM: Over 10 hours of video presentations

To purchase, please contact Federated Press.

MARKET INTELLIGENCE

The market: Developments in Canadian real estate
Bob Dugan, Canada Mortgage and Housing Corporation (CMHC); Frank A. Clayton, Clayton Research; John Bargis, Mortgage Edge

"The Canadian consumer will continue to concentrate on semi's, towns, and condos as single detached housing becomes less affordable. Some will argue that we may be headed for a housing bubble, which I believe not to be the case. My view on this is that the market will in fact correct itself if necessary by cooling at a moderate pace, and is actually showing signs of this already with the consumer moving toward more affordable housing."

Video: 68 minutes • Overheads • Paper 4 pgs. (2,585 words)

Foreign influences on the Canadian real estate market
Warren Jestin, Scotiabank

"The growth in housing prices has been phenomenal. But what is the potential for a shift in the marketplace? Let's take a look at Canadians' ownership of their own house. In Canada, the percentage of equity homeowners have in their property has gone up while in the US it has gone down. Why? Because there's more debt consolidation through home equity loans, which, at the end of the day, is the cause of less equity. That's a big worry in the US marketplace."

Video: 30 minutes • Overheads

Practical solutions for deal threatening issues
Jim Hilton, Blake, Cassels & Graydon LLP, Robert M. Putman, Legacy Hotels Real Estate Investment Trust; Jim Ward, Merrill Lynch Canadian Conduit; Silvana M. D'Alimonte, Blake, Cassels & Graydon LLP

"Sometimes there isn't often a lot of thought put into how do you measure or define some of the terms involved in your loan documentation. It's interesting that you can carefully negotiate these thresholds or performance measures with your lenders, your lawyers then faithfully document it, and then a regulatory body comes along and changes the definition of your benchmark. You have two options here. First, you can say you'll lock GAAP to be whatever it was at the time you signed the loan agreement. If GAAP changes, your measuring stick is still what you bargained for. Another way to do it is say, if GAAP changes, our definitions will be automatically adjusted to take that change into account so it doesn't inadvertently cause us to go into default."

Video: 44 minutes • Overheads

Public markets and equity
Derek Dermott, Brascan Financial Real Estate Group; Darren Schmidt, Merrill Lynch Mortgage Lending

"The advent of securitization has connected borrowers to the capital markets – increasing the supply of funds and products available to borrowers. Increased supply led to lower costs for the consumer (borrower). In fact, capital markets have been involved in mortgage financing in Canada since 1997 when programs like conduit began lending on commercial properties and sold CMBS to capital markets."

Video: 38 minutes • Overheads

FINANCING & RISK MANAGEMENT

Perilous priorities
Jeffrey W. Lem, Davies Ward Phillips & Vineberg LLP

"Secured revolving credit facilities are priority landmines just waiting to be stepped on. Historically, there have always been three principal priority risks associated with revolving credits. The first risk, tacking, is fatal."

Video: 46 minutes • Speaker's paper 17 pgs. (3,198 words)

The evolving role of risk management and due diligence
Viateur Chénard, Stikeman Elliott LLP; Ronald R. Mandowsky, Pelican Woodcliff Inc.

"When we get the financial information, there invariably is information that's left out for whatever reason the vendor did not want to reveal. In many cases, we get net income statements that don't show a management fee. Managing property involves costs but oftentimes the fee isn't included. This is just one of the many red flags to look out for."

Video: 39 minutes • Overheads

Leverage: How much and for whom?
Leo St. Germain, MCAP; C. Hunter Milborne, Milborne Real Estate Inc.; Denis Auclair, CDP Capital

"Examining the risk spectrum, an individual asset with a single tenant and/or owner-occupied is considered to be the most risky type of asset. As you come down to the portfolio level where there's a number of properties, a lot of tenants, a large geographic distribution, there tends to be less risk. Construction lending is a bit different; there's other criteria to consider, including: staying within budget."

Video: 48 minutes • Overheads

Status of the Canadian REIT market: How does it affect lending?
Stephen A. Suske, Chartwell Seniors Housing REIT; Glen J. Ladouceur, KPMG LLP

"Income participating securities are really taking the place of some of the income funds and I suspect would take the place of some of the REITs. They are comprised of common shares and subordinated notes that are 'clipped' together. They trade as a unit or separately. There's no trust in the structure at all."

Video: 38 minutes • Overheads

CREATIVE FINANCING

Challenges to Cross-Border Financings
David Dell and Jane Helmstadter, Torys LLP

"There are both American and Canadian money laundering and anti-terrorist restrictions that you have to be aware of in cross-border deals. US lenders seek broad representations from foreign borrowers to confirm that transactions are not in violation of "trading with the enemy" legislation and foreign asset control regulations. It must also be confirmed the foreign borrower is not a "blocked person" and has not engaged in any dealings with and is not otherwise associated with any such person."

Video: 49 minutes • Overheads • Speaker's paper 50 pgs. (4,640 words)

Analyzing the Canadian CMBS market
D.G. (Don) Matthews, L.J. Melody & Company (panel chair); Tim Westlake, Dominion Bond Rating Service; Charles Gamm, Moody's Investor Service; Ronald Charbon, Standard & Poor's

"The underlying asset when ratings agencies look at CMBS is real estate. Ratings agencies first look at the stability and quality of the real estate. What is the cash flow on that asset? How sustainable is it? What is the historical operating report of the property? Our model is driven by looking at the probability of default on the mortgages as well as a qualitative view of the real estate. Fundamentally, it's real estate; if the real estate takes care of itself, essentially the mortgage and the bonds will as well."

Video: 49 minutes

Taking mezzanine financing to the next level
Scott Cameron, Cameron Stephens Mortgage Capital Ltd.; Michael Carragher, Firm Capital Corporation

"Mezzanine capital facilitates the gap between conventional bank financing and developer equity. It allows the developer the ability to participate in more projects as well as commence projects earlier. If there's pre-sales or pre-leasing in place, the returns are typically less than 20%. If there's development risk and market risk, the returns are more than 20%. Late-stage mezzanine financing (or factoring profit) yields approximately 14%."

Video: 28 minutes • Overheads

Residential apartments: Opportunity for enhanced rate of return
Robert C. Helyar, DALA Group of Companies; Nelson Merizzi, Canadian Mortgage and Housing Corporation (CMHC); Jeremy Wedgbury, First National Corporation

"To enhance strong returns in multi-family dwellings in today's market, the management component of a property is absolutely critical. It's important to be on top of your tenants, to make sure you are marketing your property well, and to ensure you are spending the money to keep your rental property in good shape."

Video: 48 minutes • Overheads

SKILLS TO SUCCEED

The borrower's perspective
George M. Valentini, Osler, Hoskin & Harcourt LLP; J. Michael Knowlton, Dundee REIT

"The commitment letter is a legally enforceable document that very often leads into a loan agreement or mortgage. In order for it to be enforceable, the typical contractual obligations must be there and you must agree upon all the material aspects of the transaction. The commitment letter should not be taken lightly by borrowers; it provides the best opportunity to negotiate key issues: pricing options, security, recourse, non-recourse, carve-outs. These things are best negotiated at the commitment letter stage than during the loan agreement."

Video: 30 minutes • Overheads • Speaker's Paper 28 pgs. (12,294 words)

How to obtain the best coverage possible under a title insurance policy: Endorsement know how
John V. Rider, First Canadian Title; Wayne C. Lipton, Stewart Title Guaranty Company; Suzanne Leclair, Chicago Title Insurance Company Canada

"Commercial title insurance is gaining popularity because of its ability to cover over a wider variety of issues than a traditional solicitor's opinion. In addition to providing no-fault based coverage, title insurance covers the gap between closing and registration, and extends, in a loan situation, to successors and assigns, even if the loan is securitized. In any given situation it is important to consider the many advantages of commercial title insurance, and how it can best be used to facilitate the closing process."

Video: 27 minutes • Overheads • Speakers' Papers 25 pgs. (7,700 words)

Managing the real estate finance file: Due diligence to closing
Jillian Shortt, Fraser Milner Casgrain LLP

"A lender needs to know how much risk is involved and the nature of the risk in order to determine whether to proceed with the financing or not. Risks arise from a number of sources; they can arise relating to the income from the property, the value of the real property, the title to the real property, the condition of the buildings, existing encumbrances against the real property and personal property, the identity, status and expertise of the borrower, and financial strength of the borrower."

Video: 18 minutes • Overheads

Construction loan requests: Major risks examined by a lender
Jim Dysart, Peoples Trust

"A plain vanilla building is safer in the eyes of a lender than a unique/complex building. This is one of the biggest mistakes developers make. A jazzy building is likely to bring problems, such as budget overruns."

Video: 39 minutes • Overheads