Firm Capital Corporation is celebrating 30 years in the private equity business, and the company’s growth since founder Eli Dadouch combined his interests in real estate and finance has been substantial.
“Our name has been associated with literally thousands of homes,” said Dadouch, Firm Capital’s president and chief executive officer. “A lot of housing was created thanks to our participation in transactions.”
“We started off 30 years ago as a construction lender for smaller infill projects,” added vice-president of mortgage investments Michael Carragher. “Today we provide mortgage financing commitments from $500,000 to $50 million for land, construction and bridge financing projects, including mezzanine and equity capital investments for real estate projects.
“We also realize that, in order to be successful as a non-bank lender, we must provide competitively priced capital, a high level of service and expertise in structuring transactions.”
Eighty-five per cent of Firm Capital’s business comes from repeat clients.
“We’re in the business of creating relationships,” said Dadouch. “Long-term relationships are so important to this industry.”
The company’s staff is equally as loyal. Several employees have been with it for more than 20 years, and most of Firm’s board members have owned or been involved with companies that have worked in conjunction with it.
“You need the brainpower of a team, and we have an amazing team of individuals here,” said Dadouch.
2017 was record-breaking year
North York, Ont.-based Firm Capital Corporation has total mortgage investments under management of $1.3 billion. Last year was a record breaker for the company after completing $1 billion in new mortgage financing. About one-third of its business is done in the rest of Canada outside Ontario.
Conventional first mortgages, those with loan-to-values of less than 75 per cent, comprise 76.1 per cent of the total portfolio. Total conventional mortgages (first and second) with loan-to-values of less than 75 per cent comprise 85.6 per cent of the total portfolio. Approximately 79 per cent of the loan portfolio will mature by March 31, 2019.
Firm Capital has been able to navigate various real estate markets and cycles across Canada since its founding, which Carragher believes has allowed it to maintain and grow its core investor group and deliver stabilized returns.
“Our growth strategy is tied to finding well-qualified lending opportunities wherein we are comfortable with the safety margin for that project or real estate asset,” said Carragher. “We do not pursue growth for the sake of growth. Our primary objective is to preserve the capital of our investors.”
“We don’t follow what others do,” said Dadouch. “We do study and look at what others do, carefully. We try to be creative and innovative in our own space.”
A $147-million first mortgage transaction on an 893,404-square-foot mixed-use development in downtown Toronto is Firm Capital’s largest financing deal.
Firm Capital Corp. looks forward
“The residential and investment property markets have seen elevated asset prices, primarily because of the access to cheap capital and the compression in cap rates over the past 10 years,” said Carragher. “We have seen the slowdown in the new home and resale residential market caused by new government regulations and a 75-basis point increase in interest rates.
“It is a healthy pause for the residential market. However, there are concerns for the low- and high-rise markets, as longer delays in the approval process will result in higher land costs and reduced supply. As a result, affordability will continue to be an issue for buyers and also renters.
“Firm Capital Corporation has tremendous capital capacity to support our growth plans. We will continue to be active in the market, whether it be for land financing, construction financing, single family mortgages for the self-employed or foreign investors, bridge financing or mezzanine debt/equity capital. We tend to see better opportunities when there is more uncertainty in the markets.”
30-year evolution of alternative lending
The alternative lending business has seen a significant growth of players in the residential market during the past 30 years, according to Carragher. There are now four Toronto Stock Exchange-listed mortgage investment corporations operating across Canada in addition to a number of privately held companies, closed-end mortgage funds and syndicators.
“We see opportunities for public mortgage investment corporations to continue to grow, as the Schedule A banks will continue to focus more on their retail and wealth management clients and be caught up in the new B20 rules,” said Carragher. “In addition, the increased regulatory oversight we are seeing will make it more difficult for private lenders to participate in the real estate market.”
Firm Capital Property Trust is a publicly listed real estate investment trust with ownership interests in 61 commercial properties with a total gross leasable area of 2,529,037 square feet (1,502,783 square feet on an owned interest basis). Current assets under management are valued at more than $200 million.
The portfolio is comprised of: 51 per cent retail; 39 per cent industrial; seven per cent office; and three per cent apartment. Seventy-two per cent of the properties are in Ontario.
Firm Capital Corporation also manages Firm Capital American Realty Partners Corp., which focuses on investing and lending in United States multi-family residential real estate. It’s Canada’s only exchange-traded debt and equity investor in U.S. real estate.
It owns or co-owns 73 apartment buildings with 1,442 units, valued at U.S.$154.2 million, in Florida, Texas, New York, Maryland, Connecticut and New Jersey.