Maximize your financing journey: 5 reasons to hire a debt broker

Gain an edge in Canada’s shifting debt market

May 22, 2024

While there are positive signs of economic recovery and Canada’s commercial real estate debt markets are available and active, lenders have become more selective, and refinance spreads have widened. Investors have indicated that the predictability and stability of interest rates – not just the level of interest rates - are crucial for the improvement in the transactions market.

The availability of capital varies across different real estate sectors, with industrial, multifamily, and retail assets having relatively better access compared to office assets. Financing for land and construction is also challenging due to uncertainties surrounding costs, entitlement timelines, construction timelines, and future revenues. As interest rates remain elevated, the gap between existing debt and refinanced/renewed debt widens. In many cases, lenders are requiring property owners to inject more equity to meet debt servicing obligations, leading to potential discounts in property values during refinancing. 

With debt markets in limbo, transaction activity has been more active for smaller assets where the buyer is taking on little or no leverage, versus large assets or portfolios where debt financing makes up a sizeable component of the capital stack. The $5-25m segment of the transaction market has been very active while transactions above $100m have been at their lowest point in over a decade.

It's worth noting private capital accounts for about 60% of the total investment sale market in Canada, a record level. Canada’s transparency, high transaction liquidity, and solid growth prospects make it a preferred investment destination.  

So, if liquidity remains strong in Canada, while also diversifying, you’re probably asking why you would ever need to hire a debt and structured finance specialist for your next CRE transaction?

Here’s why:  

1. You will actually save money: A reputable debt broker will have access to a wide range of lenders and the expertise to negotiate the most favorable terms and pricing, which ultimately reduces your overall financing costs.  

2. You’ll drive competition: Sometimes, your long-term lender can become complacent, not fighting to give you the best terms or pricing. A debt expert who is solely dedicated to you and not beholden to any one institution can create a competitive environment that will have both existing and new lenders vying for your business. This gives you the opportunity to evaluate multiple proposals, compare offerings and choose the financing package that works best for you.  

3. You’ll ensure the funding is secured and the loan delivered: Not every lender is right for every project. What works for a land acquisition may not work for the purchase of an office building. Each debt financing has specific needs and requirements. With their deep understanding of the lending landscape, a debt specialist can identify the most suitable lenders for your specific project. They can also analyze various funding scenarios and capital structures to provide a comprehensive analysis of all of your options.

4. You’ll get a specialist: If you already work with a debt broker, are they a generalist or a specialist? If your debt broker can also arrange financing for a residential house, business or car then they probably aren’t a CRE debt specialist. Commercial real estate is different, often involving complex transactions with many nuances. A CRE debt financing expert understands diverse property types, market dynamics and cash flow considerations. They’re well-versed in assessing a property’s value, underwriting risks, and structuring terms that align with your goals. 

5. You'll gain access to industry connections and relationships: A debt expert in commercial real estate doesn’t just have relationships with lenders. Their network also includes appraisers, lawyers and consultants. You can use those relationships to your advantage, opening doors and leading the way to smoother and more favorable financing transactions. 

In a rapidly evolving debt market, having a trusted debt and structured finance specialist by your side is invaluable. They offer more than just numbers; they provide guidance, expertise and access to a network of professionals who can support and enhance your path to a successful debt financing. Don't miss out on the advantages they bring to the table.

Contact a JLL Debt & Structured Finance specialist today.