Vancouver mall scores one of largest financing deals this year in Western Canada

City Square Shopping Centre secures $100 million loan

Toronto-based mortgage broker Finneo has swung one of the largest financing deals in Western Canada this year, arranging a $100 million loan on a Vancouver retail property.

The owner of City Square Shopping Centre, a six-floor retail and office property in Vancouver, purchased the mall five years ago for $211 million. Mortgage payments on their initial loan were manageable due to the lower interest rates of the time.

But the owner faced a daunting task of renewing at the much-higher rate of 8.5% when the loan expired. That deal would have required the owner, identified in CoStar data as Sun Commercial Real Estate Group, to make higher monthly payments in the ballpark of over $800,000.

The situation is common among both residential and commercial real estate owners in Canada who have dreaded approaching mortgage renewals as interest rates overall have been higher than several years ago when the original loans were taken out.

The Bank of Canada held its key interest rate between 0.5% and 1.5% for over a decade before raising it to 5% with six straight rate hikes starting in 2022. A series of cuts starting last year has since dropped the borrowing rate to 2.75%.

The quest to renew the massive loan at a cheaper rate fell into the hands of Amar Nijjar, head of Finneo, a Toronto-based mortgage broker. Nijjar said he sought to find a lender that would value the potential upside of the property.

Near expansion site

“There is a lot of parking there, the location is great. It is next to the Vancouver General Hospital and the hospital is doing a massive expansion," said Nijjar in an interview. "The negative is that on income from a [capitalization] rate standpoint it is only" providing an estimated annual yield of about 3.5 percent.

Finneo highlighted the the property's solid fundamentals in mortgage loan applications submitted to about 30 lending institutions, Nijjar said. The effort bore fruit when a life insurance company offered a 4.91% lending rate.

“We were able to use a lot of assumptions based on concrete evidence to structure and package the deal in a way that we and they were comfortable about,” said Nijjar.

Nijjar, who left JLL in 2017 to found Finneo, touted the merits of advanced technology now available that allows real estate-related mortgage tasks, that used to take up to three weeks, now to take minutes thanks to fuller automation of the process.

Finneo employed new technology while working on a recent refinancing deal for the Oku condo development in Vancouver, he said. The project was 90% complete with 50% to 60% of units presold but it needed an infusion of cash to get it over the finish line.

“It’s a beautiful project but sales had dried up and there were cost overruns and that put a tremendous amount of pressure on the project,” said Nijjar.

A construction loan of $88 million funded the initial build, but the client needed an extra $17 million for completion. Finneo was able to secure a loan with the National Bank and a large family office that agreed to put up the cash against collateral from an income-generating industrial real estate property in Richmond, British Columbia.