Ever wondered where developers get their money?
They may look like bankers but the guys behind Cameron Stephens Mortgage Capital don’t fit the typical mold. They’re a team of dynamic, creative financiers who likely assisted in developing your condo building. While you may not have heard of them, Cameron Stephens is playing a huge role in the redevelopment of Toronto and cities across Canada through highly-structured lending to the industry’s top developers. We sat down with Steve Cameron, one of the firm’s VPs to talk about his job and mitigating risk in a turbulent industry.
Adam: What is your role at Cameron Stephens?
Steve: I run the Business Origination group, which is responsible for sales. This year our target is $750 million in new business. The team consists of me and three Business Development Managers, the Vice President of Alberta, as well as the Senior Vice President of Origination and our CEO, here in Toronto.
Adam: What type of products do you sell?
Steve: We work in the land development and construction sector and, basically, sell money — capital to acquire land, develop it, and build on it. We offer bridge financing, acquisition and mezzanine financing, a take-out term product that is more commercial-loan based, and some small renovation and repositioning products. Mostly we look for deals ranging from $5 million and up, on any commercial asset located in Ontario, Alberta or British Columbia.
Adam: Can you walk me through a deal?
Steve: We did one recently in Kitchener-Waterloo where the client was looking for sites to build apartment buildings. We did a land acquisition loan to help them acquire a site with an old, under-utilized industrial building on it. Once they purchased it, they had to get proper approvals on the site plan and building permits for three towers. We arranged financing for them on the first tower, a construction loan of about $35 million at bank rates and bank terms.
When that deal was completed, it was purchased by a large financial institution, so we discharged the building and did a construction loan for the other two apartment buildings — Phase Two of the project. That was also at bank terms and bank rates, and the total debt consideration was just over $80 million.
Adam: Do you have any other examples of something more traditional in the GTA?
Steve: We did a great low-rise deal here in the GTA — a $16.5 million first mortgage land loan in Markham, secured against a 20-acre site. That loan was to redevelop 1,500 residential and commercial units across multiple phases. Construction on Phase One — 500 single-family dwellings on 35' to 40' front lots — commenced this year. This is an example of the “one-stop, full service” we offer our builders — financing for land acquisition, servicing and development, and construction. All in one.
Adam: It sounds like you get the behind-the-scenes view of the development market. Can you give us a sense of how developers are feeling right now, given the current situation?
Steve: Obviously, everyone’s a bit nervous because the media talks non-stop about the real-estate industry but, at the core, we’re not seeing any slow down. We’re not seeing prices drop and we’re not seeing anyone who wants to get out of the market.
A large builder in downtown west recently said, “It’s like we’re in the fourth inning of a nine inning baseball game; things are heating up but we’re not even close to the end of the game.” A lot of builders remain very bullish not only on the core GTA or core downtown Toronto markets, but also on the extended GTA. We see a lot of firms who have historically focused on ‘Toronto proper’ now looking north, east and west for new areas to develop.
Adam: We’ve recently heard about a cash crunch because land values and recent city levies are driving up the cost of development. Is developing still profitable, especially in the core?
Steve: Yes, it’s definitely profitable. But the cost to develop and the barriers to entry are getting higher and more competitive. Historically, someone could buy a site and develop it on their own. These days, many developers are partnering up in Joint Ventures to pool capital and generate enough liquidity to flow the deal through. It’s not as common to see one person do a massive tower like you did even 5–10 years ago. Unless you’re in a league of your own, it has become very difficult to keep up with the costs. Land prices have gone through the roof, and the city keeps raising its levies and its cost of doing business. So yes, I would say it’s becoming more difficult, but it’s not impossible.
Adam: In your opinion, what are some of the things that the government could be doing in the future?
Steve: The government has been pretty clear that they’re not going to move the green belt so density will continue to be vertical. That means builders have to get even more creative and maximize uses for infill sites. We’re going to see a lot of multi-purpose construction — office, hotel, condo, retail — multiple uses in the same development.
The other issue in Toronto is transportation. No one wants to sit in their car or on the bus for 2–3 hours a day, especially millennials. The city needs to work with metro links. We need to expand our subways, and run express trains from Guelph, from Kitchener-Waterloo, from up North, and from Barrie so you can get to the downtown core in under an hour. When that happens, those cities can expand into major urban centres as well.
Finally, the government has to deal with supply. We have a major supply problem in the GTA, and rent controls are not the answer. What the government needs to do is fix the approval process time. If we had a more efficient process to get more product released to the market, there would be much less competition, and prices would stabilize. There are something like 25,000 units held up at the city right now, and it’s only getting worse.
Adam: What’s your favourite part of the job?
Steve: First of all, I love the industry. It’s deal-driven and I love making deals. I also love the people I’m meeting: they’re entrepreneurial, ambitious, creative developers — young and old. Being in the finance world can be black and white but when you get the opportunity to be around interesting people and their great ideas, it’s inspiring and energizing.
Adam: Last question, why would someone use Cameron Stephens over a traditional bank or lender?
Steve: Developers use Cameron Stephens for many reasons. Typical Schedule 1 bank financing often comes at a low cost, but flexibility, speed, and deal structure is something the banks generally do not provide, and it frustrates developers. At Cameron Stephens, we specialize in helping builders put a complete financing package together that fits their exact needs and time-frame.
Often a deal has many ‘hot spots’, more than just the rate. Things like Loan amount (LTV and LTC), equity requirement, presale tests, covenants and recourse are just some of the major factors that make a deal work. Although “Traditional A Bank Lenders” can be aggressive, they’re usually only aggressive for the top 5% of the industry, which leaves a lot of room for shops like ours to service some amazing “boutique” developers and their projects.