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In 2002 CMCC created a group
to provide mezzanine and equity lending to
the development community across Canada.
CMCC has arranged over $100
million of mezzanine and equity transactions
since 2003.
Our goal is to develop and
maintain strategic relationships with
established development partners in dynamic,
high barrier-to-entry Canadian markets. CMCC
has cultivated long-term relationships with
several premier developers by providing
competitive, creative and reliable
investment capital, and through actively
supporting the goals of our partners. We
create flexible and innovative investment
structures that protect the potential
downside exposure for our investors while at
the same time meeting the unique needs of
our developer partners.
Mezzanine lending
is high-ratio lending structured as a
mortgage which normally ranks in 2nd or 3rd
position behind high quality institutional
debt. The most common need for mezzanine
lending is on the following types of
developments: |
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(i)
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low rise residential developments
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(ii)
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high rise residential developments
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(iii)
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retail or industrial developments where some level of pre-leasing has been achieved
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(iv)
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any under-performing real estate with legitimate 'turnaround' potential
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Equity Lending
is a joint venture arrangement in which the
institutional lender will provide a
disproportionate amount of the required
equity in exchange for a participation in
the cashflow and equity of the project. The
types of real estate which are well suited
for Equity lending are similar to those
mentioned above for Mezzanine lending.
Mezzanine and Equity lending are complicated
and is usually arranged in combination with
low risk conventional debt. As a result,
mezzanine and equity lending require
creativity and experience at structuring
complex loan proposals. The extensive
banking experience of CMCC’s senior
management makes us particularly well suited
for this type of lending.
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Lending Parameters:
The basic lending parameters for the mezzanine and equity lending program are provided below:
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Mezzanine Loans
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Loan Amount:
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Minimum loan amount of $2.0 million. No maximum loan amount.
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Developer Profile:
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Experienced with a reputation for quality and success in the local market.
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Project Profile:
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A well located project in a major urban market (i.e. Toronto or Ottawa in the Ontario market) with a healthy pro forma profit margin.
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Project Status:
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The development must be showing good potential. In the case of a condominium development, the sales and marketing must be showing positive signs with the level of sales showing steady and consistent growth. In the case of a retail plaza or industrial building, there would normally be a requirement for some level of pre-leasing (say 20%-40%).
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Equity Contribution:
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The lender
will fund up to a maximum of 75% of the
total equity requirement. The Developer contribution is normally in the form of cash equity, although an appraisal increase in the value of the land may be considered where it is substantial and verifiable.
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Lender Interest Rate:
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An internal rate of return of 19% to 25% is required.
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Lender Fees:
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Normally 2.0% (this fee is added to the loan amount).
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Term:
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Normally 2-5 years.
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Equity Loans
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Equity Investment:
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Minimum amount of $2.0 million. No maximum loan amount.
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Developer Profile:
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Experienced with a reputation for quality and success in the local market.
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Project Profile:
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A well located project in a major urban market (i.e. Toronto or Ottawa in the Ontario market) with a healthy pro forma profit margin.
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Project Status:
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The investment is normally made at the time of acquisition of the land
or after there has been substantial progress made in selling units (in the case of residential real estate) or pre-leasing (in the case of commercial real estate). Zoning must be in place although an application for a density increase may be in process.
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Preferred Return:
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10% to 12% per annum. This return may be paid monthly or, in the case of a development project, may be accrued. The preferred return is first paid to the Lender and then to the Developer prior to the balance of the proceeds being split.
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Equity Split:
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Determined on
a deal by deal basis. |
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Term:
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Normally 3-5 years.
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