Being transparent with its banker likely helped save Mondev - and other real estate firms - from going under when construction costs and interest rates soared in 2022, admits its founder David Owen.

When Owen began seeing construction costs shoot up in its 10 or 12 projects under construction, “we saw we were going to be running out of our interest reserves.” 

He was speaking to VA Capital president Jeffrey Soliman during a “fireside chat” with real estate entrepreneurs at the Montreal Real Estate Forum, held June 17 and 18 at the city’s convention centre.

Mondev went to the banks and was transparent: “We said, ‘Look guys, there’s a storm that is coming. It’s going to hit everybody in the industry. We need your help.’” 

Mondev was one of the first in the industry to share its problems with the bank, Owen said, “and it’s a humbling experience. You’ve got to admit after 35 years in business and a little bit of success that you’re in trouble.”

"A lot of help" and strong recovery

Owen told the bank the company could weather the storm by refinancing its portfolio of stabilized assets, raising rents, selling assets or building land.

“We were nervous because you don’t know what the banks are going to say.”

However, “all the banks that we deal with, we got a lot of help. So, transparency is key. And when you go see them make sure you don’t go in a Rolls Royce.”

Mondev, founded in 1989, is now stronger than ever and has a portfolio of 550,000 square feet of retail, 450,000 square feet of office, 1.5 million square feet of industrial, and 4,700 units of multiresidential built and under construction.

Specialization can be a good thing: Ian Quint

Brasswater founder Ian Quint shared that he originally wanted to be a doctor - becoming a real estate developer happened by chance. 

“I believe in doing one thing well and repeating it, rather than trying to be everything to everyone,” Quint said, explaining that his firm focuses on industrial, office and retail.

Founded in 2015, Brasswater has a portfolio of 500,000 square feet of office, five million square feet of industrial, 2.5 million square feet of retail, three million square feet in the U.S. and 15.5 million square feet of land to be developed.

While he would like to diversify into residential, “every time someone gives me a pro forma and I look at it, I’m just not smart enough to figure it out. All I see is anemic returns, high leverage and development risk.”

Quint said pro formas in residential only work due to “financial engineering,” such as increasing the amortization. “I don’t believe that that’s real value, so I’ve been hesitant to invest.”

On the industrial front, supply is not increasing as there is very little new construction in the Montreal area, he said. In retail, there’s been no new supply for decades aside from the city’s new Royalmount mall.

However, industrial in Montreal will benefit from population growth, which will increase demand for goods and services, and for warehouses to store and distribute those goods.

A case for sustainable development: Natalie Voland

GI Quo Vadis founder Natalie Voland began her career as a loft office owner and property manager. The company's portfolio now includes one million square feet of office space. 

In the last few years, though, Voland has become an active real estate developer with multiple projects completed and several more on the way.

“I think it’s called a midlife crisis,” she said of the change. 

Voland, who is completing a PhD at Concordia University on barriers to carbon neutral construction, partnered with Cloriacité to create Groupe Danu in 2022 and set out to build affordable carbon neutral multiresidential. 

Cloria Lévis Signature Danū is now under construction in the Quebec City suburb of Lévis. Other projects are planned in Saint-Jérôme and Chambly and Groupe Danu is aiming to develop 5,000 carbon zero apartment units in the next 10 years.

Voland noted the concept of ESG has gotten a bad rap because nobody knows how to define or measure it. Nevertheless, there is a need to build better as “flash floods are happening faster (and) you need to figure out how to protect your buildings from any kind of climate-mitigated risk.”

Observations on the current market

Quint said it is challenging to do deals in Canada because vendors are still living in a pandemic pricing mindset. “There’s a disconnect between vendors and purchasers which makes it very hard to buy here.”

Brasswater has had better success doing good deals in the U.S., where it has properties in 20 states. He said municipalities there are more pro business and welcoming than in Canada.

Quint also said the real estate business should have its employees back in the office five days a week.

 “There are many owners and managers of office properties in this room that can’t get their own employees back into the office five days a week,” he said, “but nevertheless, they expect office to come back and people to occupy their office towers. That’s not acceptable.”

Mondev has recently sold about 600 multifamily units to CAPREIT, InterRent and Canadian Urban. “You have to be flexible when you’re in business,” Owen said. “Sometimes it’s better to recycle your equity, so that’s what we did.”

On the other hand, Mondev has acquired “three phenomenal sites” in the past six months, including the Ilot Voyageur Sud development in downtown Montreal, which will be Mondev’s biggest project to date. 

Mondev is acquiring these properties “at very, very good prices” when most of the industry is not actively buying. “If you’re in a strong position you can take advantage of that.”