FC Firm Capital Mortgage Investment Corporation

As interest rates rise and banks pull back on lending, real estate owners with loans coming due find themselves in a bind, as the refinancing loan amounts are not sufficient to pay out the full maturing debt. Last year’s dramatic rate hikes — the steepest in a single year since the 1980’s, means that some owners are being forced to inject more capital into their projects post refinancing, rather than taking money out or even covering the maturing debt.

Firm Capital, an alternative lender, founded in 1988, wants to capitalize on this misalignment, by providing a gap-financing solution, with a focus on, fast service, and innovative structures, such as providing Multi-Residential properties with the following options:

1. Bridge-Gap first mortgage financing pending conventional take-out, including CMHC submissions as part of the bridge commitment;
2. Secondary debt shortfall mortgage financing;
3. Mezzanine & partial equity, to address the shortfall on refinancing;
4. Preferred priority equity / partnerships to help with re-capitalization

Firm Capital is focused on this lending venture across Canada, as these facilities are designed to address the financing gaps between 20 to 30 percent of the capital stack because of the impact of rising interest rates.

Higher rates have increased the cost of borrowing money. Real estate owners are facing new challenges with their debt-service coverage ratios, which are used to measure a borrower’s ability to repay their debts. When borrowers run into trouble with their coverage ratios, senior lenders are unlikely to help, leaving a need for new sources of capital, according to Firm Capital.

Adding to this problem, banks are hesitant to offer loans at higher leverage points. As well, some banks are pulling back on real estate lending altogether as they assess the market. Banks are dealing with issues on their existing portfolios after originating loans to borrowers at lower rates without the short-term ability to grow net operating income. Now rates are higher, but operating income has remained the same, particularly in rent-controlled, tight markets, leading to financing shortfalls. Firm Capital’s gap financing solutions address these issues, providing the bridge, pending CMHC or institutional take-out, and if needed provide partnership equity to get past these higher rate issues.

Firm Capital has been a lender, owner and manager in the rental apartment building space since the late 1980s and understands the required time horizon needed to seek rental growth.

A sample recent transaction, a borrower needed to consolidate a number of bridge loans into one first mortgage of $51 million, pending securing corresponding long-term debt. Firm Capital will be providing the $51 million bridge mortgage and at the same time will submit to CMHC an application for the long term first mortgage. We thank our partners and originator, Foundry Mortgage Capital Corp., for working with us on this transaction, and taking the lead as our approved CMHC correspondent and managing the CMHC process.

About Firm Capital Corporation Where Mortgage Deals Get Done®

Firm Capital Corporation since 1988, has operated as a non-bank lender providing residential and commercial construction, bridge, special situation mortgage loans, and conventional real estate finance, including providing term debt, acquisition facilities, and mezzanine and equity capital investments for real estate projects. Firm Capital is the Mortgage Banker to various capital pools, including, since 1999, the Toronto Stock Exchange, listed Firm Capital Mortgage Investment Corporation (TSX: FC); Firm Capital Mortgage Investors Corporation, a private mortgage RSP fund in operation since 1994; and Firm Capital Private Mortgage Trust, a private fund designed for investors focused on alternative debt investments.

For further information, please contact:

Michael Carragher        VP, Mortgage Investments        (416) 635-0221 Ext. 245        mcarragher@firmcapital.com