Future of Commercial Real Estate, Benefits of Canada, Investment Strategies (W/ Nav Dogra CFO Capital)

Welcome back to another episode of Inside Canadian Real Estate. Today I'm here with my friend NAV from CFO Capital. And CFO Capital is a commercial mortgage broker and they basically specialize in connecting real estate investors, buyers, developers with lenders in the various programs that are available to them. They specialize specifically in that they are a commercial brokerage. That is all they do. And in fact, they have about 19 originators that work there at CFO Capital.

They all are commercial bankers in their previous careers. So they're commercial bankers first that have transitioned into the lending space on the brokerage side. And so you have a ton of expertise working with them. They have a ton of connections. They know how it works behind the scenes because they were bankers themselves. So it's a very, very unique kind of platform and a very unique company to work with if you've ever thought about buying commercial real estate, investing commercial real estate or building commercial real estate.

So if any of that has been on your mind ever, whether it's multi family, office, industrial, whatever it is, you're going to want to listen to this episode. Today we dive into some really interesting things and I actually learned a lot myself about the options available. So without further ado, let's get to the interview. Perfect. Well, NAV, thanks so much for coming here today, man. I appreciate.

It thank you. Thank you for having me. Very excited to be here. Awesome. Why don't we jump in with a quick little intro and have you tell me a little bit about first the firm because you're here, I mean on behalf of how we met was through the company you work for and then a little bit about you yourself, how you got here. And then I want to talk about your background, because you have an interesting background as well.

I hope I have an interesting background. So I'll start with the firm. I work for a firm called CFO Capital, which is a boutique mortgage brokerage firm based out of Markham, but serving all across the country. We have three offices, Toronto in in Halifax as well as in Vancouver, 19 originators working across asset classes, be it multifamily, retail, hospitality, construction, construction is where I I want to say that my expertise actually comes. In the last four years I was with a bank called Equitable Bank, which has become the 7th largest bank in this country after the major acquisition that they did last year. And just by virtue of being at Equitable, I was exposed to a lot of deal flow.

They have massive funnels. They have a lot of deals coming in because of which I was able to, I should say, I was really lucky to do $3 billion worth of financings in the four years that I was there. 60% of that was probably construction split across CMHC as well as conventional construction and the remaining was adaptive reuse of assets, stabilization of of various assets, Everything, anything and everything that was outside of a standard cash flow box was stuff that we were doing at Equitable And it was, it was a great place to be, a great experience. Prior to that I was with a bank called ICICI. Now ICICI is actually an Indian bank. I was in their Mumbai headquarters which I joined after I finished at MBA and I was in a rotation program.

They asked me if I'd like to go to Canada, you know, see do business development in Canada. It's like why the hell not? I came over here in 2015 and I was supposed to be doing corporate banking where I was supposed to originate deals across across industries, so services, manufacturing, what have you. And when I started doing that, I realized that it's extremely hard to displace an RBC that may have been in there for 50-60 years as their banker. But when I would call the real estate folks, they would be very receptive to meetings like they if I called them, they would say, yeah, you know, we don't need any money right now, but why don't you come in, we'll have a chat and see what you're all about.

And I felt that warmth and I felt that acceptance and that's how commercial real estate came to be And I set up the ICCI desk for doing commercial real estate lending and ICIC as mandate was limited in the commercial real estate sense. They were also going to ask me to move to a different country after this either it was supposed to be the New York or South Africa but I decided to to stick back in Canada. I was having a great time raising my family here and changed my job at that point. Interesting. So what did you like? I mean, you said it's kind of like a no brainer when they offered you to come to Canada, but what really was it?

There had to be some specifics running through your mind. Why did Canada seem like a good option in terms of the career growth? I it was actually more experiential than career crew that was just excited to be here. I never thought about coming to Canada or living in Canada. It just never occurred to me. It was never in the life plans.

But it was I think a case of stars just aligning. But you know, I came here, I thought I would go for a lot of nature walks. I thought I would, you know, go to the Rockies and things of that nature. I actually came to explore and have fun for three years, four years while working. It just turned out to be such a family oriented place that that really attracted me ultimately. So you weren't really thinking of the economics at that time or the opportunity from a business standpoint?

It was more just a personal experiential. Yeah, true. From an economic standpoint, I thought I was doing fairly OK Living where I was living, did the job that I had was fantastic. It was just you. Just being here in this country really opened my eyes to the quality of life that people get to enjoy here. Interesting.

It's always interesting to get that perspective too, because when you live here and work here your whole life, you don't see it as easily and there's a lot of people that are born here that now the trend is leaving. It's like I need to get out of this place. And I think it's because we don't see the perspective of maybe what we have as compared to the the global backdrop, both from like a personal standpoint but also the business standpoint. And we have like those little things like you mentioned nature, like you came here thinking you're going to do a lot of nature walks. We don't think about that. It's just always here.

That's just a thing. But I guess if you're coming from other places, it's actually pretty incredible, right? It's underappreciated and that's fine. I I people who are talking about moving down South and moving anywhere else, I say go for it. You know what they'll be like the the Canada geese, they're going to fly right back in some time. And I don't doubt that to me, and I've said this in many, on many occasions to different people, that I see Canada as a generational place.

What is it that that humans really, need, really, really need? OK, you need fresh water and Canada has 99% of the world's freshwater lakes. What do you need? You need food. There's really three food growing regions in the world. There's Russia, there's Argentina and there's Canada, Canada and US Which one of these are you putting your money on?

It's short. It's not US. I'm sorry. It's not Russia and it's not Argentina. It's North America and that's where you want to be. There is an unfortunate fact of global warming in this world, but what that is doing to Canada is that it's actually increasing the growing season.

So you're able to grow more diverse crops, things that you couldn't because of the limited growing season. So to me, there is stability here and the world will go through some turmoil over the next couple of decades. And if you want to really have a stable footing, I think Canada is the place to be. You you get, you get hyper specific and say, yeah, you know, real estate is expensive and things of that nature. I suppose we'll talk about that at some point. Yeah.

Yeah, those are all facts. But you know what? Prices reflect value, and there's a reason why prices in this country are high. Yeah, no, IA 100% agree with that. And I think this is a good pretext for the conversation today because when we talk about commercial financing, a lot of this, it backs onto commercial investment, whether it's investment in your own business growth or investment for the sake of investment. And when you're, when you're making those kind of decisions, whether it's opening your next headquarters or office or building a property to lease up and build a portfolio out of, you're thinking about now where to do that.

Like we live in a very global world. And so when you're making those investment decisions, whether you're starting a new firm or new company or you're expanding something, you start to look at, well, is my money best put to work here? Is it safest here or should I be looking S should I be looking E should I be looking into developing nations or is it here? And I think that conversation has to be had around, well, maybe why is it a good time to be here? And I think you're right. Like Canada's a very, very unique place for a lot of reasons.

And I I was almost one of those people that left Canada a couple years back in the peak of the pandemic when I was getting really fed up with what was happening. I actually got a full US visa approved. I had an E1A5 year E1. I have it stamped in my printed in my passport and we were almost going to do it and I didn't do it. And part of it was what you just said. So I realized a lot of that how unique it is here from a global standpoint, I mean one from for my family and all that.

Yes. But also when you look at all the other options of where's money going to flow, it actually starts to look more appealing then it's going to come here because in times of turmoil what people look for is stability. That's it. We have stability. And so as soon as that kind of clicked, I was like, no, you know what? And the other thing was, which I'm very glad we did, when you start to invest in other countries that you don't know, you don't have networks in, you don't have boots on the ground, you don't have your family, your friends, like it's not just sending someone a research.

It's like when you live a place, you know the place. And so when you, when you go somewhere else, you give that up. So whatever potential economic gain short term you think you're getting like, oh, Florida makes more sense for ABC. You lose in the not knowing the market, not knowing the people, not knowing the vendors, not knowing the professionals, not knowing anything about that area. And it becomes challenging. And I had a lot of people in my network at the time leave when I was going to leave.

They've all come back. Like you said, they've already come back. I'd say, I'd say 70 to 80%. They they sold their homes here and left their back. Incredible. I mean there you go that that that that just goes to show the, the, the stability that you know one thing that I I think about often is that what, what, what do investors need?

Well, they need 18 to 20% IRR returns, OK. You can get 1820% IRR in what is called the global South or the emerging markets. But is that 18% really risk adjusted, So you're not, you're not factoring in the political risk in those some of those places, not all of them, but some of those for sure. Are you factoring in the currency risk? So an 1820% has to be looked at within the context of that that stability. You know, this has, this has become a off later, a beaten down word.

But when you talk about people actually coming into this country, all things considered it still is a net positive. Yes, you know it's, it's driving up real estate prices. There's no doubt about it. It is. It's it's simple economics one-on-one. But then you know what, you know who's bearing the brunt of those of that.

It's actually the same people who are actually coming in. Yeah, so, so, and Despite that the, the, the, the value that this country still continues to promise is driving a whole bunch of people to seek shelter and to seek opportunity in this country. I agree. And the numbers don't lie. And it's a very positive thing for for real estate, which is immigration. We have some of the like if you look at as an effect kind of per capita or our total population, the percentage of new people we bring in some of the highest growth in the world, like you're talking between student permits and permanent residences and visas and all this somewhere around 1.5 million people a year.

Yeah, some of them are temporary and students, but a lot of them stay and find ways to stay. So you're somewhere between 800,000 and a million, some people that stay here every year. That's a lot of growth for a a country that's like sub 40 million in population, like nothing really comes close. So that speaks to a, people seeing the value, but B, the future of the country there there's no way to avoid like if you if you drive people somewhere, they're working, they're creating things, they need housing, they're they're taking up jobs, You get entrepreneurial people that come in and start businesses that it's hard to avoid growth when you have that kind of population coming in.

And I think that's something that's that's very positive for real estate and for business as a whole. I'm absolutely right. I mean we we talk about productivity and productivity in this country has been on the decline. Per capita GDP unfortunately has been on the decline because the the number of people that have come in haven't yet. I suppose there's a lag effect where it takes time to realize the economic growth coming in from from those people. So install capacity takes time to catch up in my opinion.

So a lot of critics will point to the fact that, OK, per capital GDP really hasn't increased over the last few years. So you've the GDP numbers the same, but you've added more people, it hasn't kept pace. Well, I think that give it time and I think that you'll start to see the benefit. It's very simple. You have more people. You have a bigger market that is better economics.

It's there's there's no, there's no two ways about it. It's it's really rather simple 100. Percent. And it does take time. I mean, like if you you think about it from an individual standpoint, you come to a new country, those first few years are survival. You're just trying to get your footing and and get the pieces done that you need to get done.

And where where am I going to work and how do I get my papers in order and where are my kids going to go to school? Where am I going to live? You're just surviving. But the moment you have that down, you start looking for opportunity. How do I grow? How do I build?

And that's that. I think we're going to see over the next 5-10 years a lot more of that. Yeah, yeah. No, absolutely. I I I speaking for personal experience. The first eight years of this of me being here, I was, I was working.

I was in a in a job and then now I've broken out and trying to to create something and trying to do things of my own. And it takes time. It takes time for everyone. I I think I'm one of the slower ones to actually move down this path. There would be people who are much smarter and much more able than me, who can do it much faster. Yeah, I love that.

So let's get back to the business of IT. Also you're working at is it fair to call CFO capital of commercial mortgage brokerage? That is true. That is true. And you mentioned a word, came up a couple times. I wanted to go back and I want to revisit it because maybe people listening might not understand, but use the word originator you mentioned you guys have 19 of them, I think it.

Was yes, that's right, that's. Right. And you worked at ICI originating or sorry, which what bank was it that you were? ICICI or was I and then equitable? And then equitable and you're acting as an originator in that capacity. What is an originator?

So an originator is basically a very, a very crude term would be a sales guy, somebody who goes and and sells. In my case I'm selling money, I'm selling a loan, I'm selling services off the bank to a potential customer and that's that's really an originator. As an originator on the brokerage side, I am, you know I said a broker, you're trying to originate the requirement of a loan and trying to match that with the requirement to deploy money, right through a financial institution trying to marry those two things. That's really my job. I originate. I could try and create these opportunities to lend.

Right. And so you guys at CFO Capital have about 19 of these institutions that you can kind of pull from. 19 Originators the originated the the the, the institutions that lend is is basically anybody and everybody. Oh, I see. That is an institution or even or even a private that is willing to lend for a specific use, got you. And that and that specific use in our case we are, we are hyper focused on commercial real estate in Canada.

Right. OK. I love that. And so when you kind of got into this, like when you got into the banking sector to begin with and then eventually, of course you mentioned kind of the opportunity between the banking sector and kind of seeing the opportunity to get to the brokerage side. Was there ever a time where you kind of compared cuz real estate goes two ways? We have residential, we have commercial and there's two paths to both and they're very different.

Was there ever a time where you've kind of evaluated both side by side and say, hey, maybe I should look towards residential? Does it make more sense? Does it not make more sense? Did like, did you pick commercial intentionally or was it? That's kind of where I am. That's where I'm going to keep going.

It just happened to be because I was. As I was saying I was, I was a corporate banker where I was dealing with companies. It just became a natural progression that I should deal with companies that deal in real estate rather than an individual that's looking to buy a house and I should go and help him raise the money. You don't. I didn't really think about it. If I maybe perhaps if I was a retail banker more than a corporate banker, maybe that's the part I would have taken.

I I imagine. But it just became such it it went down this route because I was always on the corporate side if. You were on the corporate side, which makes sense, which is good. So you leverage your experience and actually to move forward, you didn't jump around too much. Yeah, you're good at one thing and you're like let's keep this going and leverage that experience. And I'm assuming a lot of contacts you made along the way helped continue into the broker side as well.

Absolutely. The the contacts and the and the skill set, the ability to read financial statements, the ability to understand financial models and build financial models, build performers is what has really come in handy and helped me develop this craft and really offer a valuable service, I should say, right? So let's dive into that. I want to talk now about what you actually do in the client. So what kind of clients are you working with? Investors that are looking at commercial real estate developers that are building buildings in Canada.

Individuals that are that have decided to buy for their own portfolio. It's a plethora. As long as you're a buyer or a seller of commercial real estate, there's something that I can do for you. Interesting. And do you guys have kind of a particular maybe niche that you focus a lot on or you see a lot of the business coming from over the last few years? So I'd say that for I think every originator at CFO Capital brings some of that with them.

So like I said, for me, it's been the last few years a lot of construction, a lot of multifamily and adaptive reuse of assets, a lot of flavour. The last few years has been on the industrial side and that's what I like to focus on. I do believe that there are other asset classes that have lost some Sheen and maybe contrarian at this point that I want to start focusing on. The the, the, the, the, the fundamentals remain the same across where is the, where is supply limited and where can you find assets that are selling above their replacement value. That's really where the puck is. Going as it's interesting, so do you have opinions or can you share on where these places are?

You know it's it's going to sound funny. I do believe that retail is one place where it's going and that's going to sound funny obviously because of the online phenomenon and we talk about retail bankruptcies all around. We last heard that mastermind is going into credit protection and we've all heard of Sears and things of that nature. And I'm not talking about big box stores. I'm really talking about your neighbourhood retail, the small footprint, the small Bay service oriented neighbourhood restaurant, that type of retail is something that I I really, really like. The last eight years have seen the population in this country go from 35 million to 40 million, but the retail footprint has actually shook.

A lot of the retail has been repurposed into into apartment, into into multifamily. So you have a shrinking supply but an increasing demand side and notwithstanding any short term, any, any short term. Softness in the economy and softness in demand, I think over the next five to seven years, that's an asset class that I'd be interested in watching a lot. Yeah, that's a good point. And I think when me and you were originally connected, it was on that point and that's something that I was interested in as well because I see the same thing. And I think there's a lot of towns and municipalities that they, I mean they kind of have to I guess, but they build a lot of housing and you see these master planned communities go up and retail always kind of lags a little bit behind.

And a good example as I mentioned earlier that I'm currently living in East Willenbury that that little pocket which is like right between Bradford on the I guess West side, Newmarket on the East side, King is South of us. The problem with E Willenbury is you have homes everywhere and a lot of these new builds you're talking you know 1.8 million, 1.9 million. So high end homes, large, large subdivisions, nice area, quiet parks but nowhere to go in terms of retail. So when you need to like like yesterday I have to drop someone off with the dry cleaners, I'm going to Bradford, I want to go eat restaurant, I'm going Newmarket, Markham, I'm heading that way.

We we don't have the even the essential stuff that like convenience store, groceries. All that I have to go into Bradford or go down to Newmarket and E Gulenbury is an example of one of many of these relatively sizable townships with a lot of homes and decent sized population, something like 40,000 now in East Gulenbury which is growing quickly. Affluent population. Affluent population. So there's money, there's disposable income, but there's no proper like even small retail hubs, there's there's not enough of those little strip malls that I can just go to and do the stuff that I need to. Do you know, think about this, if there was a small cafe on your street with a convenience store next to it, wouldn't you be there all the time?

You would just walk there, get a coffee, maybe sit there for a bit and and come. I think this is a, this is a planning issue. We're building very, very car dependent communities. So. So you know there's nothing that this is has to be enabled by the planners and the and the people that actually work there. But that's exactly the the thesis of the investment idea that I was talking about that a small you're just your neighbourhood retail, that's all, that's all.

And you know in in older countries these neighbourhood shops are what is is where everybody kind of congregates. That's where you get to know your neighbours. You know you've gone you, you're out of milk. You just make a make a run, get some milk, maybe get some eggs or some bread and that's where you bump to your neighbours and and actually really brings the community together, but also could be a strong investment thesis in the future. I think so, because I think we're lacking a lot of it. And I always wondered, I mean was how much of it was lack of planning and how much of it was just there's such a push for housing, Everyone talking housing, housing, housing.

Governments got to build more housing incentives for more housing. Everything is build, build, build housing. No one's really thinking like, wait, like we have to build stuff. It like, is it just not as profitable? Is that why they're not paying attention to it? Like from a builder standpoint, are they just overseeing it because the focus is on on residential.

Are there just too many residential builders or that's all they do because that's what we focused on for 10 years. And now we don't have people that think, hey, let me build retail. And if we are, we're doing it in the city, we're doing Tron GTA, but we're not thinking about it from the suburbs. Like, I'm trying to figure out where the issue lies. Like why is there so little supply? And will that in your opinion, like do you think that supply issue with retail is going to continue?

Because like I just went to a big conference in Toronto, it's called the Powerhouse. It was, it was housed by Reya. So we had Doug Ford, we had all the provincial basically party leaders there talking about housing. The whole theme of eight hours was we're going to push more housing, we're going to do more multifamily, we're going to, you know right now it's it's it's I think up to 4 units in in Toronto and most of Ontario's 3 units on single family lots with basically don't have to do any adjustments, no zoning changes. They want to push that to four and six across the province. Eventually they want to fund the more dedicated apartment buildings like you're going to see.

My point is I think more and more focus, it's not slowing down on residential, more builders coming in more and all the investors I talked to now are saying OK we got to get on the residential side, we got to start building multi family, we got to start buying single family homes, doing more large conversions, doing infills, they're all looking at that again and I'm thinking well what's going to happen again to this issue with retail, we're going to have a lot more places to live and still nowhere to go, grab that coffee, grab that milk, you know drop my dry cleaners off, that's it. Is that going to keep happening? I mean, you know, housing for all, for all the attention that it's getting, I think it's all warranted.

Obviously, you know this housing crisis is is is decades in the making and you know we've done that to ourselves. So the more attention it gets the better. I think that's, you know, housing is the first thing you first are looking for shelter. But but at some level I feel that when you when something is being talked about so much and there is let's say an adequate supply nevertheless supply that is coming into housing. So from an investment standpoint, is that where you really want to be if you're building, if you're, if you're a builder of housing and you're able to build houses for less than what they will ultimately be valued at when you sell them, that's that's one thing and that's great.

If you can actually do that, although it's not happening these days, we'll talk about that later. But if you can do that, you're making a profit and it's actually worth your while to build houses. I think I think the, the, the retail comes next. I think that attention is, is not at at crisis levels. We're seeing crisis levels in housing and we're already five to seven years behind the behind the curve in housing. So.

So get get all the attention and housing, but if you're thinking about like a smart investor, where is the attention not going, where are you still, where is that inflection point still and that to me that is your neighborhood retail. Yeah, I I think so too because I mean I don't see any attention going there at all. And I I think even the big investors like BlackRock or or not BlackRock which is the bigger version of the two Blackstone, Blackstone, Blackstone, they have a few funds. They, I think that the most recently closed was end of it was the end of 2021 or 2022, but it was something like $43 billion they raised, it was a closed fund that they raised 43 billion, they closed up maybe I think they've only allocated a few billion out of that.

And when you look at the plan for distribution of like where they want to place that it's overwhelmingly industrial like they're looking all the big players, it's industrial and I I guess economics makes sense. But if the big guys are looking at industrial, like the big big guys and the smaller guys and also big guys are looking at residential in different categories depending where they're building, see who's looking at the middle. Yep. And you you as an individual, you have to pick those. That's you. You've hit the nail on the head.

You can't go up against a Blackstone like Blackstone's, the biggest real estate. Fund in the world and. And if all the institutional attention is going to developing houses where you know you need to pick your niche and yeah, you know, I I'd say opportunities like the the small Bay retail is, is where you need to be. You need to be looking. Yeah. And now I mean the question is like, we dive into that, OK, I want to, I want to get into retail.

Let's say I'm an investor. The problem I'm going to run into right away is money. So now I need money and the economics have to make sense for me. They have to make sense for the lender. And I think that's part of the challenge is like land here is so expensive. So if I get like, how do we overcome this?

Because if I come across a small piece of land, maybe it's an acre, 2 acres, it's in a good spot, it makes sense for retail. How do I make that business plan make sense so that a lender looks at it and says, yeah, this is something that we can find and invest in versus well, no, you have two acres, you should be building multifamily because that's what we know. That's where there's subsidies, that's what's going to be profitable. How do you, how do you overcome that part of making the financials of retail make sense? That's that's actually a a great point that's that's incredibly challenging. Obviously to make numbers work whether it's retail or even if it's multifamily is a challenge in today's market.

The land values have nothing but gone up the last two decades. We are seeing a cool off in land prices without a doubt, but but then again the hard costs to build have gone up dramatically. We are facing a massively labour shortage when it comes to trades in this country and to drop it all. Now we have interest rates where where they are so it's just so nothing is helping. So identifying and and and anything the right type of project and building a strong performer is really what drives it. If you're not showing profitability at the end of the day in your performer, A the lender may not be interested and B why would you even build?

It. Well, exactly. So, so it is certainly a challenge. So buying the the land at the right prices, getting the the right trades to come in, negotiating the prices with your trades and ultimately deciding, deciding whether it is that you want to hold the the, the development for your own benefit ultimately for your own rental cash flow or if you want to sell it. That's, that's the big question and and the part of the service that that we provide is actually helping you make economic feasibility sense of what you're ultimately developing and how the capital has to be divided. Right, Yeah.

Because that's something that I myself as an investor try to figure out. And I mean I know you're you're quite investor minded. And so like I mean if I asked you for your perspective because there's two ways we go about retail as well. We either build it ground up, we find the land, we build it, we convert. So we find something that's already there, but maybe it's not used as retail and we convert it to some sort of suitable retail use or we improve, we buy existing retail, but maybe it's a bad tenant mix, it's just not operating properly, it's mismanaged, it's falling apart. Do you see more viability in any of those three options when it comes to getting into retail?

I think the lowest tanging fruit is the one, the last one that you said that there's a dilapidated Plaza. Maybe the the, the, the tenant mix isn't ideal. You go in and you do your renovations and you bring in your leasing programme, maybe make it more appealing, paint the the the parking lines and you know do a nice job there to attract the right type of tenant mix. I think that's the the lowest hanging fruit. Rather than trying to go ground up development, in some cases ground development might just make sense. You've had a parcel of land sitting there in your family for for some years and you're able to build it at the right price, then yes, you know, go right ahead.

But I think especially in the smaller centres maybe more suburban rather than urban because if it's if you're going urban. I'm not an expert in this but I would say that it's it might make more sense to do a multi family development with with retail on grade which I think the city is is mandating in a big way, but in the suburban centres there could be some low hanging fruit. Yeah, No, I agree. Yeah, we we do a lot of business in Barrie and I see a lot of that mixed-use where you have retail ground level and all residential above maybe it's 6-7 storeys which I'm guessing they're they're taking advantage of that CMHC and those programs as well with those and a lot of the which there's a lot of new incentives I've heard coming for that actually.

Do you, do you have you like dove into any of that like all these new incentives, the 50 year financing, the 5% down like is that that seems to be a pretty big I think reason too why everyone's trying to get into that multifamily space. CMHCS I call it the flagship program now just because everybody is going for it. The MLI Select has been has been a game changer over the last couple of years. I think they've it came in right and it was introduced in March 2021. But it's really been a lifesaver for a lot of projects and in some cases it's really the only game in town if you're doing purpose built rental development. So what they're offering is, is if you qualify under a single pillar or a combination of three pillars that is affordability, accessibility and energy efficiency, you can get certain points.

Based on those points, you can get extended amortizations, probably the best interest rates you can in this country for your development. And with the removal of the the GST and the HST and those CMHC benefits that you get, you can make your project quote UN quote pencil. When I and when I say you can make it pencil is that it actually makes financial sense to build a project because a lot of these projects have been underwater. They've just been sitting there. Nobody's getting into the ground. But these measures have been helping at least some projects get off the ground and and like I said CBHC has been a tremendous support to to purpose built rental development in this country.

The last time, from what I know the last time they actually had a massive build up of purpose built rentals was the 1970s and after the 1970s. It's been really the last five years, seven years maybe Max, that they've really been focusing on building purpose built rental and in large part it's been thanks to the CMHC programs. Yeah, No, I can. I can definitely see that. One question I always had about that program because I'm still kind of learning about it. It only came to my attention maybe a few months ago.

So I'm a little bit behind the curve, but it's obviously slotted for purpose built rentals. So you have to be building something that you intend to rent out and create affordable in part affordable rental housing potentially. Does that transfer over for resale, like if I build it to meet all those qualifications, but when I'm done I plan to sell to another investor who's going to hold? Does that qualify or is part of the program that I have to actually hold it for a certain amount? Of time that's that's that's somewhat debatable. CHC is to to read into what CHC says is a challenge into itself.

I don't think that if you build it and ultimately you want to sell it that they're going to stop you. But I don't think that they like that very much. So you're walking a fine line when you try and do that because the idea is OK, you build it as an affordable and then you sell it. The program under which it was built perhaps, let's say it required affordability. Is the next buyer going to maintain that affordability? Are they going to look, get to look out of, get, get, look to get out of that quote UN quote, the COI, the certificate of insurance that actually mandated that affordability.

And once that is done then what was the point of them going out of their way to give you this cheap money only for you to make a private profit and and be out. So I don't think that they they stop you technically, but they definitely look down on it. That's interesting. Yeah, that's definitely something to consider for sure. Especially for the smaller. I know some developers looking into smaller infill, developers looking into getting a Multiplex up on a single family lot, but with the purpose of resale, they can kind of get those quick turns, get their money out, do the next one, and use this program along the way for some of the bigger multiplexes.

But that might not be necessarily possible. That's going to be a bit of a Gray area. Or maybe they'll let you do it, and happens once when you go back to the next project they're going to. Say they'll they'll remember it, they have, they have, they have long memories, they'll remember it. And maybe you don't have an easy time, As easy a time and getting your next project approved with CMHC. If they know that that's your ultimate intent, they want you to hold it.

They want you to keep the affordability in place. You're committing to a 10 year affordability as per their definitions. When you're actually accepting the COI. How can you move out of that? It's a, it's a, it's a it's a contract. Right.

Now that makes sense. Now are there any similar, so we talked about this in residential, are there any similar incentives or programs or maybe various lenders or companies or similar insurance programs outside of residential? Like does any of this exist for for retail or industrial Is is any of that there? No, unfortunately not. I think the when it comes to commercial developments I think it's it's really you have to know the lender that you're dealing with. What I will say is that every time we put a project out order order order debt request out into to our to our investors, we find a twenty 2530% difference in the proceeds in the interest in the fees and that could really be a make or break between you as an investor making a no return on your on your equity or making a sizable return on your equity.

So commercial unfortunately does not have any of these government programs. None that none that I'm aware of, and I'm pretty sure there isn't any. But you really have to do your homework in figuring out how you're raising your your, your, how you're structuring your capital, and where you're raising it from. Right. Yeah. And I think that that's what makes commercial a little more difficult, but also why the opportunity is there because it's a little harder to do and it comes down to those relationships and and you don't have so much of that that support as you do in the residential side.

You don't have those I guess tailwinds so to speak. So you really have to run your numbers properly, you have to have the right partners, which could lead me to my next question. I mean you guys as a as a as a brokerage, so CFO Capital as a whole really specialize in commercial. There are other brokerages that maybe are smaller, maybe are similar size that do both. They'll do your house that you're living in and maybe they'll do your commercial property building retail. They'll say, yeah, sure, I can get you construction financing, I can finance a project, we can finance it.

When you're done, whatever it is on the refi side, they'll do both and then sometimes it's the same agent. I've had the same agent where they do both, I know agents that will do both themselves. What's the advantage of working with a firm like that versus the specialization that you guys provide? I I I was hoping you'd say that it's the same firm but different agents but you know having been in banks I do know of agents that that end up doing residential as in when I say residential I don't mean like a multi family but I mean a single house and also doing commercial and and not to bad mouth anybody but I just I I struggle with that sometimes I struggle with that because there's only so many things that you can do really well and these are such different trades in my opinion that you know I mean I think you should keep it separately.

I I just I don't do single family houses because that's just not my area of expertise. I've never done it. I have the license to do it but will I do it? Probably not because I'd be doing a disservice to the person who I'm representing. Maybe there's somebody else who can get them a better deal a better structure and maybe caters to their needs. For me it's commercial and and I'd rather keep it that way.

When you're working with somebody who is specialised, I mean it's it's a, it's a you know, I love basketball. So let's take a basketball analogy. If you're if you're looking to score in the paint, you want a 7 foot centre. If you're looking for for outside scoring, you want maybe a three and D threat, somebody who can make 3 point shots and actually play your defence, Who do you want to go with? I'm not saying one is better than the other. I'm just saying you you employ the right guy for the right job and just there is people who do that.

What you what You said. I I don't know if you're really getting the bang for your buck there. I I'd agree with you. I mean I, I, I always prefer specialization. And I think the problem especially in this industry of real estate is that commercial's a very tight knit world and it's in many ways a very closed door world. And I think when it comes to building a network in that space, you need, especially when you're talking about having a brokerage work with you to help you find financing.

You need a brokerage that is very embedded in that world and is very respected in that world. Not someone who's playing both sides a little bit depending when it's convenient. And yeah, sure, I can get you commercial financing, but really I don't know anyone in that world, but I guess theoretically I could or my brokerage has a contact that's not going to be helpful enough because you need someone with with deep ties and ideally not to promote you directly too much, but someone that has experience in the banking side as well that knows what what these banks are thinking, what these lenders are thinking and has the understanding of that whole world, not just, you know, a connection.

Oh yeah, my broker chest, someone that does commercial, I can definitely get that done for you. That's not going to cut it. I think especially now in this competitive era where it's very hard to get these projects financed and the numbers are tighter and tighter and banks are are less and less willing to throw money around the way they were. I think now more than ever that specialization matters. You can you can promote me all you want. First of all I don't I don't mind her at all.

I figured not knock yourself out. Yeah. So let me let me do some shameless self promotion here. So CFO Capital, each of the originators is actually an ex banker. They've all well tenured. Some of them were were regional heads in in the institutions that they led or they were really ground up deep into the numbers but associated with banks.

And ultimately to take your point as you were saying earlier, it's still a very, very closely knit community. It's become larger and larger over the last. It's grown in front of my eyes, but it's still everybody knows everybody type of community. And if you you want to be that guy who when you call a banker is taken seriously. You you're presenting as somebody who knows their numbers, who understands deals, who understands the complexities and is able to present risks, but is also able to tell you why those risks fall within the sandbox of the institution that you're approaching to provide or to look for financing. That's that's become more and more important.

I think the days of easy money are behind us then they're not going to come back for the next 10 years. We are in a in a more realistic scenario of money, the zero interest rate phenomena, 0 interest rate phenomena, lifted a lot of boats, got a lot of deals done. Perhaps that some of them shouldn't have been done, but they're done and that's behind us and we'll pay through it, pay for it at some point. But I think it's it's the fundamentals will you'll see that fundamentals start to come back into the market where you're it's the easy passes are finished and that's when you really need somebody who understands, somebody who's been trained in the craft, somebody who has those strong relationships and those lending relationships actually rely on when a deal is being brought in and that they that they listen to you and they take your call that's that's going to become more and more important and I think that I do everything type of business is going to fall away.

Yeah, I agree. I agree. I think having that unique value proposition like you guys have where every originator, which again part of our learning today is the, the person that's putting together these deals, that's connecting the money with the people borrowing the money, having all those originators have a banking background is huge. So if there's anyone listening to this that's like, yeah, I have to finance whether it's my first commercial property or I'm expanding some sort of portfolio, that's something to consider. Like coming to Someone Like You guys where you're not just getting brokers, you're getting bankers, you're getting people that know the language and know the people that know the landscape.

That's huge. Yeah, I mean thank you for the promotion though. But you know there's, there's there's a few guys like CFO out there. So whether you come to CFO or you you go to somebody else, just make sure you're picking the right horse exactly. It's horses for courses through and through in this business and just just bet on the right one. So I love that.

So now I'll tap you for some of your inside information here and see if I can steal some insight. Are there any kind of so outside of residential because you know, there's a lot of focus on that, but whether it be in in retail or industrial or land or whatnot, is there any asset classes you kind of see shining through from a, how do I word this from a lender's perspective as being preferential like something that they're talking about behind closed doors. If we need to do more of these deals, we got to get money into these types of deals. Are you hearing or seeing any of that from their perspective or are they cautious across the? Board it's it's I think it's, it's it's caution across the board to be honest the the, the the two most favoured asset classes and that has been the case for the last three to four years has been multi family and and industrial.

And I think lenders will look at those two assets with with a better sense than still looking at retail. Office is extremely tough, land is, is very tight. So to find land money and office money is you have to have a very, very compelling story and good credit metrics, strong personal financial background to make those kind of deals work or or or a solid structure. So you know at this point I don't think there is one asset class right now that banks will secretly say let's try and do more of that. I think it's it's that everybody is wading the waters with caution, right. I think it's a time of caution more than a time of trying to increase their exposures.

I mean what we are seeing is if you if you saw, yes excuse me, if you saw yesterday Scotiabank released their financials and their they they've significantly upped their loan loss provisions. Now whether or not they ultimately end up, whether or not ultimately they end up using some of those loan loss provisions they've made, what they're essentially telling you is they're expecting losses on their portfolio and RBC didn't exactly follow suit. They actually showed, but that's individual. But from a secular trend perspective, you're going to see banks getting more and more cautious and I don't think that there is one asset class that they will significantly favour.

I think it's going to be more caution than anything. But when I hear of an asset club, when I see, when I hear of the tides turning, I'll, I'll be sure to let you know. Yeah, I definitely, it's it's a hard market to be in because I feel like every every month it's different. I hear something different, something's changing, focuses are changing. There's nothing really outside of of residential like large residential commercial stuff. There's nothing standing out that is like, I mean there's there's, there's there's a thesis like our retail thesis here of hey this this makes a lot of sense.

I like, I like that idea, but I don't see the whole market shifting behind that saying like, yeah, this is definitely the thing we got to go for and obviously you don't want to wait for that either because if that happened probably we missed the boat. So it's it's kind of tricky to identify like where are things moving. And on the industrial side, that's always been interesting to me in general. I just didn't know how to make it work because the prices are so inflated and the competition is so big. Like you're up against people whose pockets are like limitless. And I was going to ask you like if you guys do a lot of industrial deals, I'm not sure how much you involve in the industrial side, but like are you seeing a lot of industrial deals pencil out and and how are these things even penciling out?

So industrial has not not been more about new industrial development, but it's actually been what you said taking a rundown building with with legacy rents and have the lease roll over and mark those rents to market. Industrial rents the last five years have tripled on average. They have, they have tripled from six or $7.00 a foot. They've gone up to 20 bucks a foot very, very off late seeing a little bit of a cool off, nothing noticeable but just a little bit of a cool off as the as the economy cooled. So goes industrial. We had a contraction in the in the Canadian economy in the last quarter 1.1% contraction.

So I you'd imagine that industrial is very much aligned with that, but to move even even Even so to move from those legacy rents that were struck maybe in 2014 for a 10 year lease and that's coming up for renewal in 2024, you you're going to see a significant upside in that rental. And what is real estate? It's, it's, it's basically a bond with with cash flows discounted at a certain rate. Now that certain rate has also gone up make no mistake. But overall with the increase in cash flow, you're going to see the value of that building jump and that's really been the theme that industrial has been following. A lot of big investors have gotten on that board.

We were talking about Blackstone. Blackstone was one of the with the orgies of of doing that, of writing out that wave they saw, they were one of the 1st to see it. They rode that wave in in the US and we've seen that in Canada with with a multitude of investors, big and small, the last four or five years. Yeah, I think they've become, I might be totally wrong, but I think Blackstone is now becoming one of the largest acquirers of industrial property in Canada since last year. And that's just me poking around costars. So I could be wrong, but looking at the funds that are setting up in Canada and how much money is being allocated, it looks like they're positioning to become one of the biggest players in, in Canadian industrial.

So I'm wondering if they're seeing something and if they're seeing because my fear is always longevity as well. It's like did we miss the boat on industrial? Was it crazy till now, but maybe it's going to taper? Or is there still a long life here? Like do we have a 20 year cycle where if you're investing now, you still have a long time to make money, you have a long time of rent still coming up and no sign of that slowing down And I think that's what they're seeing. But possibly you know I, I, I, I I think about how industrial rents are almost where retail rents are.

So you know you're you're at 1820 bucks in industrial and and a typical strip Plaza would be 25 maybe 30. So you're you're already getting up there. So how much more room is there in Industrial? I sometimes think about that, but if if Blackstone is doing it well, they're the they're the smartest guys in in most rooms. So you'd have to look at what they're doing and and figure out what they're trying to do. Yeah, they see something there for sure.

And because we're bouncing around asset classes, I mean I'll ask the broad question too from an investor to kind of a lender standpoint. Do lenders look at favorably or unfavorably individual investors who maybe especially smaller like let's say me, do they want to see me hyper focused like Darren does Retail deals, we know that, we understand that. They don't want to see me do one retail deal, one industrial deal, one, you know, office deal, residential deal. Is, is that frowned upon is, is it specialization you're looking for? Does it not matter deal per deal basis kind? Of it's I I wouldn't say.

I wouldn't use the word frowned upon, but it is seen favourably. If you're seen as somebody who focuses on an asset class, you you know you. What you're doing by that is as a you're giving the loan officer tools to work with. You're saying, you know what, hey, going to the committee and saying, I know Darren, he knows retail. He's been doing it for 10 years. This is, for example, a slightly larger project than he's used to taking on.

But we believe in his ability. He has shown his ability to manage these properties go through the cycles. So let's put our faith in him. Rather than saying suddenly he's acquiring 100,000 square feet of retail, let's put our faith in him. Which is not to say that you cannot pivot. You can and you should.

As a as a smart investor, you should always be pivoting. But then making bite size perhaps moves and and learning it for yourself or actually investing with someone that that gets you in as well. You're you're say a minority player with a larger more experienced developer and you're the and you're putting money with them and then the next time you can say, OK, you know what I'm going to be majority is something you could still use to to make your case, to build your case with the lender and and get the money you need. Interesting. So you're really, so you're able to tell that story even across deals like that, like you can have, I can come do a new loan today for a property, let's say it's a it's an industrial project.

But maybe my last one I did as a minority partner. You're able to convey that story on the new deal to the lender and say this is Darren, this is what he's done, here's the last deal, here's his involvement. That's something you can use. 100 percent, 100%, I mean you have to build the right story and and and do it the right way. Look it's a it's a long game. Nobody's out there to play one deal and and done and banks remember banks again have have very very long memories and it's a small market you you always want to do right by the lenders always if you if you're in it for the for the long haul.

Yeah. No, IIA 100% agree. That's interesting. So there's a lot of good takeaways here. I think we discussed a lot of good opportunities. And I think it's something that if you're an investor looking to do commercial makes a lot of sense to me, especially with the as hot as residential.

I mean, residential can still be commercial, but I mean anything residential, although it's hot. The problem with residential to me is always the cultural side and the policy side. There's risk on the policy side there's risk of government hands being more and more involved in your business. That always scares me and if that scares someone listening, I think commercials is a very non residential. Commercial is a very appealing asset class and I think people just are a little bit intimidated by it. It's something that's a little more unfamiliar.

But I think what they're learning from this is it's not as crazy as it seems. And if you have a good partner, especially on the lending side, the brokerage side, they can tell your story in the right way. They can kind of help guide you and make your deals make sense. And it's not something that people should be intimidated by, because I think a lot of people are. You know, if you there is no, no passive investment in real estate, whether it's a house or it's a Plaza. There is no hands of investment in real estate.

That's that's simple as that you what you could use some hand holding with an expertise is perhaps structuring your deal the right way but ultimately you're managing it and when we can certainly help with the former but if you're used to managing assets it's it's about building it up smaller in smaller chunks and and getting to that place where you want to get to. But don't be intimidated by it, use the put the right put the right team around you whether it's your leasing guys who who who you choose to engage to lease out your property or you choose to manage your property. But ultimately you have to be involved as you might be with with a couple of condos that you own in managing those.

It's it's not. It's not significantly different in my opinion. That's that's been my theme lately. Is it all takes work? You might as well go big because at the end of the day it's still, it's still 24 hours in the day and you can fill them all with a few small rentals and you can fill them all with a massive portfolio. You're not going to add more hours for the day, you're going to do it all in the same time.

You might as well go a little bit bigger and get the right partners or at least be thinking bigger. Maybe you're not starting your first deal bigger but thinking of what's the and that's why I love commercial is that scalability of it. Even if you get that expertise in that small local retail Plaza, but then you start getting bigger and bigger and you look like those guys from, I don't know if you're familiar, they're kind of your neck of the woods. But Tri cap, Tri cap properties, like they're they're someone that I look at a lot and I'm actually speaking to some other team next week as well. But when you look at a company that size, I think that's that's something that's interesting to strive for.

They're not so massive that they're, they're a Black Rock in the world. They're very much kind of a local firm doing business in a certain area, but they do business very well. They have great scale. Their properties are fantastic. Most of their properties are the stuff that I frequent as someone living in those areas, which is, which is awesome. It's kind of a testament of how they put stuff together.

But that's the stuff I think you should be striving for. Is is building firms like that. Yeah, true, true. Yeah. Whatever gets you excited to get out of bed is what you want to do. Just don't get wiped out.

One rule of investing is just don't get wiped out. Exactly. And that that comes to taking your time, getting expertise I think and also you alluded to earlier is maybe getting the right partners and doing deals with people, structuring them the right way, I think is a big part of this game too. So. That's awesome. So if we, if we're going to kind of wrap up here, where can people reach out to you if they want to kind of connect?

I know you're not big on social media, but how can they reach out to you? I'm hopefully going to start building something on social media soon. Been doing that forever, but if you need to reach me cfocapital.ca that should have all the information that you need. Reach out to anybody. If you want to reach out to me, send me an e-mail. It's NDOGRA at cfocapital.ca and we can connect.

That's awesome. Well, now, thank you so much for being on the show, man. I appreciate it. 100% thank you for having me. Thanks for tuning into another episode of Inside Canadian Real Estate, guys. Don't forget if you liked the episode, if you found it enjoyable, if you learned something, if you liked our guest, if you liked our topics.

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