Canadian Lender Turns Toward U.S. as Property Market Gets Choppy

(Bloomberg) -- One of Canada’s biggest non-bank commercial mortgage lenders is bracing for the next recession by shifting more of its attention to the U.S.

Canada has fewer opportunities and the level of competition makes it harder to find investments that let you earn an appropriate rate of return, Greg Vorwaller, president of Trez Capital, said in an interview in Toronto. That isn't the case in the U.S.

``While both economies are slowing, waters are still calmer in the U.S. and more choppy in Canada,'' Vorwaller said.

Vancouver-based Trez Capital has pushed about half of its C$3.5 billion ($2.6 billion) capital to the U.S., double the exposure since 2015, and ahead of 2020 target. Vorwaller would be comfortable pushing that to as much as 60%, but is maintaining the 50% target for now.

With more financing opportunities to seize given its market size the U.S. is a better place to do business in the event of a downturn, Vorwaller said.

A flood of more lightly regulated non-banks have rushed in to fill the void across industries as big banks have pulled back. Job growth is also higher in the U.S. and the market is demonstrating more signs of liquidity, he said.

Trez Capital has already moved to tighten its credit and underwriting policies to hedge against a downturn. Their goal is to provide 70% to 75% of the cost of developing a project to new borrowers, with some exceptions. They were funding development at an average loan to cost ratio of around 80%.

Within Canada, Trez Capital is seeing better opportunities in Toronto compared with British Columbia, where its business has traditionally been concentrated. The city has seen an influx of almost 100,000 immigrants for the year through July, boosting demand for home construction.

Vorwaller said he isn't concerned about the increase in competition.

``There is a lot of new equity oriented players who are looking at the current yields, but they are getting more aggressive,'' he said. ``They’re moving higher up the loan to value loan to cost curve capital stack than what we would feel comfortable with.''

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