First National is differentiated as a commercial property mortgage lender not just because of its size – with over $35 billion under management – but because of its ability to provide both insured and conventional financings to address the needs of commercial borrowers across more of the credit spectrum. Yet it was always missing one key product: a lifeco or bank-like conventional term program. Until now. As Jeremy Wedgbury, First National’s Senior Vice President, Commercial Mortgages, tells us below, that gap has just been filled.
Jeremy, how important is this new conventional program to First National?
It’s game changing. We’ve never had a product like this that would allow us to compete in this part of the market. As consequence, institutional-grade clients with deep capital and liquidity would look to us for insured financings all day long but not to provide a conventional term loan simply because we could not match other institutions on price or term. Our clients have told us for some time that they wanted First National to get in the game. We’re really excited to do so in 2021. We’ve branded this our First National Conventional Core program because it’s core to our total solutions offering that brings together great products with market-leading client service and advice.
Tell us about its features.
First, it’s term agnostic. A borrower can use it to finance for periods of 1 through 20 years. Second, it can be used to term out a construction project, refinance existing debt, for an equity take out or for an acquisition. Third, it’s available for all different types of property assets. We suspect demand will be strongest in our core apartment market, as well as industrial. It can also work well in financing high-quality retail and office properties. Most important and as I mentioned, it is competitively priced.
You introduced the product just a couple of months ago. How has it been received by the market?
Exceptionally well. We’ve received strong support from our customers and broad interest from accounts we have not served in the past. As we speak, we have about 20 files in underwriting and five term sheets signed. The conventional market is very competitive but I could see doing $500 million to $1 billion a year in financings with this program.
Why would an apartment owner finance conventionally instead of using First National for an insured loan?
Our insured products are still a great option, but the answer is First National Conventional Core is the perfect alternative for owners with a short-term investment horizon, who want an accelerated closing that isn’t possible with CMHC and for those whose portfolios are not currently positioned for CMHC’s large borrower requirements.
In effect, this program adds to First National’s presence as a one-stop shop for borrowers?
Exactly, it expands our ability to present different options. Unlike a balance-sheet only lender that provides a single choice, we can create different and truly unique bids by mixing and matching our products to arrive at a more competitive, customized solution. We can also walk a project from stem to stern – construction loan, bridge loan, stabilization loan, term loan, take-out loan and perhaps some subordinated debt on top. A total solution.
Is there a maximum LTV for the Conventional Core program?
For a good asset 70%, but remember that many of the large borrowers who will use this program intend to keep their leverage low – more like 50% – as a means of getting the best rate along with the responsive service that makes First National the trusted choice in the commercial mortgage marketplace. At lower leverage, interest only or non-recourse options are also available.
Sounds like First National Conventional Core could sell itself.
In my opinion, all of our products stand out but don’t forget that the key to every successful financing is combining the right program with the best service, advice and execution. For First National, it is not and never was a matter of selling a product. It’s about helping our clients to achieve their goals, their ROI hurdle rates in the most efficient, risk-managed way. Our teams from coast to coast have the expertise, the market insights and the empowerment to add value to the products we present, whether conventional or insured.
Being a game-changer, do you think this program will allow First National to add more clients?
We already serve many of the biggest and best names in commercial real estate but not all of them and this product will definitely open doors by making us price-competitive with Canada’s big lifecos and banks. But it also provides optionality for our existing customers. The way I look at it is that the First National Conventional Core program gives us the opportunity to start a new conversation and to be of more value to clients, new or long term.
When you think about your full product line up now, are there any gaps?
No, we offer bridge loans, construction loans, second mortgages, conventional term, and a variety of insured products with substantial liquidity in every case. We also have an industry-leading Early Rate Lock program that is attracting great interest as bond yields rise. In a very real sense, we’ve got our clients covered as a one-stop shop able to address the full financing lifecycle of any real estate project from construction right through long-term ownership and in any economic or market environment.
To hear more about the First National Conventional Core program or one of our many other offerings, please speak to your First National advisor.