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Commercial Financing/Investment Still Tight

Commercial-Financing Canadian commercial real estate investment will tumble up to 40% in 2008 if CB Richard Ellis is right. (See story in TheStar.)

Vancouver is Canada’s only major market that’s shown a rise in commercial investment this year. ($1.6 billion versus $1.5 billion last year)

As most in the commercial side of our business know, financing is tight–to put it mildly.  Commercial lenders have no shortage of want-to-be borrowers so they’re being very picky about the deals they look at. 

The smaller, looser, lenders are still in the game, but they’re not charging anywhere near bank rates.  Instead, borrowers are paying well into the 10%+ range on most non-‘A’ deals (e.g. deals where borrower equity is low, debt coverage ratios are only so-so, etc.).

“While large pools of capital continue to be available in Canada to qualified buyers of commercial real estate investments … lenders today are much more stringent in their lending requirements than they were in the past,” says CB’s Stefan Ciotlos”

That means, for example, that folks looking for 90% debt financing on a construction project, with little development experience, only 10% pre-sales, and minimal net worth, probably shouldn’t get their hopes up too high.