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By Robert Fleet and Peter Cook

Property owners in the multi-residential industry often rely on funding to facilitate growth. Like every industry, they have options with whom they choose to do business.

We set out to evaluate what borrowers truly value and what they consider to be frustrating in the lending industry. We hired an independent marketing firm to interview a random selection of clients that have dealt with multiple financial institutions.

They were asked seven questions:

1. Aside from a competitive interest rate, what’s most important to you when choosing a financial institution?
2. What were the biggest frustrations you have experienced when doing business with financial institutions?
3. What problems would you like to see solved in this industry?
4. What do you expect of the representative serving you?
5. What added value do you expect?
6. If you invest in amenities, which ones produce the best ROI and why?
7. What is the key to your success?
   

To give you an idea of the size of each respondent’s company, we include the number of suites and buildings they own. For privacy reasons we exclude personal information.

Let me speak to your supervisor
69 Suites - 7 buildings

I look for a financial institution that allows me to deal with the decision maker. I don’t want to deal with “middle men”. When dealing with a national institution and I was forced to deal with branch personnel unfamiliar with multifamily lending. The decision makers were in Toronto. The branch contact was a “go between” that had to get approval from Toronto on everything. It’s a lot more than just signing up for the best interest rate. I need to work with somebody knowledgeable about multi-residential financing otherwise they sell you incorrect products because they don’t understand what we’re looking for. My biggest frustration was not being able to speak with someone who truly understood multi-residential financing. It was further complicated by the fact that; instead of just having a phone conversation, I had to send a note in writing and wait for replies.

The problems I’d like to see resolved in this industry is the CMHC’s conservatism of financing value. I don’t think they are reflective of true market value. The representative that looks after our account should respond quickly, ask me questions and dialogue with me. They should also keep me informed about the market, financing criteria, rate changes and trends. I like to get a newsletter telling me what’s going on in the market.

We invest in amenities that are exterior common elements like landscaping and picnic tables because they help to keep vacancies low and you lease up quicker. My key to success is hands-on, self management. You have to keep expenses low. Being an owner operator provides better control.

I want flexibility
48 Suites – 1 building

I look for an organization that offers flexible alternatives like an assumable mortgage and five and ten year options. The frustration I’ve experienced is the interest rate change that occurs from the time I get a quote to a few hours later when I fix the rate for a mortgage. I would like to see a web site that compares rates from all lenders.

The representative should make sure they “put everything on the table” instead of surprises part way into the transaction. The added value I look for in a rep is they maintain a personal relationship with me and coach me through the process.

One amenity we invested in was upgrading an old laundry room. We improved it with lights, tiles and new machines and are now able to charge more for the service. Tenants now use the facility more often. Our success comes from our good customer service. Our tenants stay longer and spread a good word about us.

Give me high value financing
417 Suites – 7 buildings

We look for financial institutions that provide a mortgage with the maximum possible loan to value. In the past the problem we experienced was slow turn around with our bank, partly due to the extensive amount of information they wanted. One thing I would like to see improved is a turn around time of about three weeks. I expect my representative to communicate regularly about the status of our application and to provide ongoing service afterwards. The added value we look for is a deep knowledge of the multi-residential industry. We shouldn’t have to educate a personal banker about our industry.

We invest in energy saving items and upgrades to kitchens and bathrooms to make units easier to rent and command higher rents. We would also add in-suite laundry facilities where possible. Our success is due the length of time we’ve been in this industry. Our buildings have appreciated in value significantly.

I want responsive service
15 Suites – 1 building

I look for a financial institution that gives a high level of service. More importantly I like the opportunity to speak with anyone in the company that knows my file – the financial analyst, the manager – anyone. My biggest frustration is tracking all the paperwork and third party reports required for submission.

I’m a broker and property owner so I expect my representative to be responsive. They should quickly and accurately address all questions. My lender should be a source of information. They must be knowledgeable about the trends and the buildings on the market. I look to them for market intelligence and current underwriting practices.

We are adding security systems with cameras to make tenants feel safer and we’re considering WiFi for the building. We believe our success will come from keeping our suites filled using social media.

Streamline the process
4000 Suites - 16 Buildings

We look for financial institutions that make doing business easy. We should be able to phone and get fast, accurate answers from knowledgeable people. The biggest problems we’ve experienced were from the lender’s lawyers. They know who we are. They know our credibility. We’ve done business before, yet they still make things difficult.

The expectations I have are quick response to term sheets, looking after our interests and streamlining the process for us. The added value we look for is an ongoing, friendly relationship. They should also keep us up-to-date with interest rates and give us a monthly or quarterly report as to the trends in the industry.

The amenities that give the best ROI are readily available laundry facilities and updated landscaping. Our success comes from hands-on management by internal staff.

It’s all about the details
7000 Suites - 40 Buildings

Our priorities in selecting a lender is their ability to complete due diligence, quickly provide the commitment letter and allow us to set the rate and fund the transaction on time.

We’ve found various clauses that crept in at different stages of the process that become impediments to closing the deal. We once provided an environmental assessment which was accepted by the bank. At the time of funding, another department rejected the report. We were forced to get it updated and that cost time and money. Worst than the cost was the month-long delay during rising interest rates. That cost us about $300,000 in additional interest over the life of the mortgage. Needless to say, we were very angry.

Our biggest frustrations in dealing with banks are long closing times and legal details at the time of closing. Our representative should facilitate the process quickly and smoothly, with the least amount of time and pain possible.  We prefer dealing with lenders that are well connected and willing to introduce us to other industry professionals.

The banks don’t do it so it’s an added bonus we enjoy when dealing with apartment financing specialists.
Fitness is a prevailing trend so we invest in fitness facilities and swimming pools. It attracts good tenants, provides a convenient way to nurture their healthy lifestyle and saves money on gym memberships. Another convenience is ensuite laundry facilities.

Our success comes from doing our own construction, maintenance, repairs, landscaping and management.

Understand your market
824 Suites - 14 Buildings

We expect our lender to understand the multi-residential industry. Some banks don’t get it. There are things that make sense in this industry but most banks simply don’t understand it. The biggest frustrations we experience with financial institutions are the slow response times to mortgage applications. We consider three weeks to be a reasonable time. We’ve experienced delays as long as three months.

The representative should respond in a timely manner and be honest in their dealings with us. As far as added value is concerned, I look for two things – leads to investment opportunities and regular updates about the marketplace.

The most valuable amenities are on-site laundry facilities, a fitness room and guest parking spaces. The key to our success has been the support of our lender. Our company relies on access to money for expansion. We refinance to extract equity from our properties to grow our business. We are fortunate to have a stable financial sector in Canada.

Make it personal
28 Suites - 3 Buildings

Our choice of financial institution is based on relationships. We expect to receive personal attention from our financial partners. They need to know our goals and needs and tailor their proposals around them.
The frustration we experienced was with a multi-departmental institution. We were looking for an $800,000 mortgage for one of our multi-residential properties and were told to deal through their “telephone banking” service. We chose not to.

This industry should adopt a more regional cap rate assessment that reflects the true market value. CMHC and lenders should find a way to reflect a cap rate down to the neighborhood level instead of the city. Our financial representative should give us personal service, understand our file and take their previous experience with us into consideration. The added value we expect is introductions to others in the industry that may benefit us, especially people who are selling properties – both owners and real estate agents.

The best amenities are kitchen upgrades and clean, fresh laundry rooms. Landscaping is a must, and going green to help us and our tenants reduce costs and do our part in protecting the environment. Our key to success is our ability to create “homes” for people. We call our tenants residents and treat them as clients. Our philosophy is to make them as comfortable in their homes as possible.

Conclusion

It’s not surprising to us that property owners look to their lenders for much more than a competitive interest rate. Common attributes they seek are industry knowledge, honesty, speed and quality of service, strategic advice, less red tape and introductions to industry contacts. It is clear the greatest dissatisfaction to these owners  arose when dealing with multi-departmental institutions rather than apartment financing specialists.

(The opinions of the contributors to the article are not necessarily reflective of those of Peter Cook, Robert Fleet or First National Financial.)

Follow us on Twitter @Robert_Fleet and on LinkedIn.  Peter Cook and Robert Fleet are committed to helping borrowers strategize the best loan structure possible. They are available for one-on-one consultation for any CAM reader requiring multi-residential financing. As “Apartment Financing Specialists” with First National Financial LP they have originated over $4 Billion of mortgages. Their combined 35 years experience in the financial industry has lead to frequent speaking engagements across the country. They freely share their knowledge and techniques with audiences, clients and prospective clients. If you have questions, Peter and Robert may be reached by phone or email.

Peter Cook - (416) 593-2913 pcook@firstnational.ca
Robert Fleet - (905) 301-3449 robert.fleet@firstnational.ca