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As interest rates continue to move upward, how can you cash in on this?
This week, Cory and Melisa welcome Lawrence Green, President of Spire Development Corporation, to discuss what he sees happening in BC’s best markets and how you can make money from these high interest rates. Spire Development enters its 17th year of operation and brings a one-stop shop to developers and commercial real estate owners looking to maximize their property’s value through development.
Lawrence also discusses his latest venture, Spire Pacific Capital, how people can participate on the commercial lending front, and how their model protects investors against borrowers not making interest payments.
With over two decades in the commercial real estate industry, Lawrence provides some great insight on what’s next and what to watch out for.
Where are construction costs going? How does an equity deal work? And are there opportunities in Chilliwack commercial real estate? Spire Development’s Lawrence Green shares all!
Can you tell us about Spire Development Corporation?
Spire was co-founded by myself and Pete Rackow about 17 years ago. We were working for a Western Canadian developer and prior to that I had a long brokerage career. I’ve always had the desire to start my own thing and when I met Pete, we became fast friends and knew we’d have a great partnership together.
Marrying our two skill sets gave us the diversity and ability to go from meetings to a set of keys for ourselves or one of our clients. We cover every aspect of development and construction. It’s a one-stop shop with marketing, design, construction, financing, etc. By handling all sides of the equation, we’re able to add some certainty and stability to our projects rather than another developer who has to hire third-party contractors.
We’re very selective with third party stuff and who we deal with. We’re able to be more efficient for our clients and make communication easier. Having the experience that we do is a huge benefit for our clients.
We try to acquire as many properties as we can and hold what we can. Other things we will sell or lease into the marketplace. It’s a mixture. We have held everything from retail to multi-family to storage.
What markets are you excited about?
Traditionally we’ve been a Lower Mainland developer and builder. But with the scarcity and cost of land, and with the timeframe for permits, we’ve had to look elsewhere. That has led us to outlying markets like Kamloops, Prince George and Chilliwack. We’ve moved into those markets with a client leading the charge, which has been an excellent opportunity for us.
For example, we acquired a regional shopping centre in Chilliwack. We re-tenanted it, built a few more buildings and now hold that asset. We acquired it in 2015 and still have it today.
We’ve also built in Calgary, Edmonton, Fort St John, Kelowna and onthe Island. We quite enjoy the out of town work! We have a desire to acquire more and explore those markets with our clients. It’s a lot easier to get projects out of the ground out there than in the Lower Mainland.
How is the Chilliwack real estate market changing?
When we acquired the mall in Chilliwack in 2015, it felt like it was in a different province. It might as well have been in Alberta! We saw there were vacancy issues and anticipated issues finding trades. But we looked at that as an opportunity.
Chilliwack is a growing market. Big players are coming into the market and acquiring land. Rents were undervalued and it’s an easy place to do business.
Larger land parcels are harder and harder to come by these days. The mall we hold in Chilliwack is a great opportunity for us to hold land and be paid to do it.
How did Chilliwack’s retail market fare through covid?
Our mall is 80,000 square feet with a multitude of buildings and retailers. We don’t have a big grocery anchor but we do have other big names.
With the exception of a gym, we had no issue with our tenants through covid. We did work with them to keep revenue going, especially some of the restaurants. Our tenants got creative and figured out how to survive through a tough time.
Is Chilliwack still a good commercial real estate market?
We’re looking at a few projects out in Chilliwack right now. Our mall is actually zoned for residential rental units so we’re working through that to see how we can maximize the asset’s value.
We are big believers in the Chilliwack market. Land is getting scarce there. So it’s on our radar!
Kelowna is another market we’re watching. It was on fire for a couple of years so it will be interesting to see where it goes. We’ve done some deals on the Island too. Those deals were smaller, so we’ve had to adjust our expectations on return. Small deals take just as much work as the bigger ones.
Where are construction costs going?
I’m hopeful we’ll see some price reduction on the cost side of building. But looking at the number of projects and the demands on materials and labour, I just don’t see the pressure coming off. We lost quite a few senior trades people during covid and there aren’t enough to keep up with the demand.
If we can’t get supply to the market, we’ll always have difficulty creating homes for people. Until we fix the huge gap in the number of homes needed, we’ll continue to have serious pressure on trades, material and labour.
Can you tell us more about the companies under Spire?
Within the Spire group of companies we have Spire Development Corporation, Spire Construction and Spire Pacific Capital. Spire Development acquires opportunities and builds them out or repositions them for sale or income. Spire Construction is a construction company with its own labour force.
Spire Pacific Capital, our most recent venture, is a vehicle for raising and deploying funds into first and second mortgages. We’ve had a finance company on our radar for a while now. It allows developers to access the additional financing they may need outside of traditional lending.
With interest rates as high as they are, there’s a huge delta between what banks are lending and what developers need. We’ve been analyzing those opportunities and have tens of millions of dollars out right now through Spire Pacific Capital.
How does an equity deal work for a developer?
What people don’t understand is that private equity is a massive component of the real estate business. This allows people to invest their money in different ways than they usually do.
We structure our deals to lend money for 6-24 months which puts pressure on the developer to keep things moving and allows you to forecast what will happen in a short timeframe. These deals are secured by real estate we’d want to own if anything went wrong.
What’s unique about Spire Pacific Capital is that we are owners and builders of real estate too, not just lenders. Traditionally, lenders are just relying on market data and reports. But we’re building projects every day so we understand the costs. That adds a huge amount of security to our investments.
Typically you’re pre-funding your interest. For example, if you’re lending $1 million with a 10% interest rate on the mortgage, the borrower gets $900,000. You would then pre-fund the interest rate, $100,000, which gets put into a separate account. That money gets distributed on a monthly basis to the investors so they receive their return right away. It’s a really safe and quick way to invest in real estate. The borrower doesn’t have to make monthly payments and the investor is safe.
Once the sponsor receives permits or kicks off construction, we get paid out and traditional construction financing goes in.
Where is the BC real estate market going in the next 12-24 months?
On a macro basis, if you look at the number of people projected to come to Canada and you look at our housing shortage, industrial land shortage and even retail land shortage, it’s a challenge. Getting your hands on land in the Lower Mainland is brutally difficult and competitive. As long as that continues, there will be at least gentle upward pressure on land, construction and end project costs.
If you own a little bit of every asset class, residential rental is your hedge against inflation – it’s your bond or money in the bank. If you buy something more sporty, you need spread on your interest rate and cash flow.
If you look at where we were with super low interest rates, I believe that was the anomaly. I think we’re into a more normal interest rate environment.
The low interest rates caused a huge amount of frenzy and inflation. Money was free and easy but now that party is over.
We’re into a more balanced and normal interest rate environment. I hope we see some more stability with the Bank of Canada holding our rate. But I hope they continue to stimulate our markets.
The government let this run out of control. I don’t know how you have a 2-3% target for inflation and then let it get up to the high single digits. The government was stimulating the economy like crazy and it got out of hand. A lot of people made big bets thinking interest rates would stay low. But now we’ve seen one of the faster and largest increases in the prime rate.
It takes a lot of time to make real estate liquid and get out of projects. Right now, I don’t know what a good deal is. I can make money when the markets are going down and when they’re going up. But when the market is stagnant? That’s difficult.
The 6 Pack: Getting to Know President of Spire Development Corporation, Lawrence Green
Favourite bar or restaurant?
My buddy is a classically trained chef and has a restaurant here in Tsawwassen called Illuminaté. It’s the best food in the city and the best value! He used to work in some of the best restaurants downtown but got tired of the commute. We’re lucky to have him.
What would your last meal on death row be?
I’d probably start with caviar. I love foie gras. And then I’m probably into a nice big steak!
Favourite band?
I grew up listening to 80’s hair metal. I recently took the kids to see Motley Crue, Def Leppard, Joan Jett and Poison. So it probably has to be Motley Crue or Ozzy Osbourne. The first concert I took the kids to was actually Kiss.
What’s your go-to karaoke song?
Probably Fleetwood Mac’s Don’t Stop.
What book would you recommend to our listeners?
The Art of War. I read that book every time I travel. Another book I recommend is 177 Mental Toughness Secrets of the World.
What is something you’ve recently purchased for under $2500 that has had a positive impact on your life?
I was on a trip to Winnipeg to see the Jets play the Canucks. A buddy of mine has a cigar and whisky bar there. I probably bought about a dozen nice cigars there.
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What's the best real estate market to invest in? What are the commercial real estate asset classes and property types? Hosted by Cory Wright, founder of William Wright Commercial, and co-hosts Adam and Matt Scalena of the Vancouver Real Estate Podcast, our podcast opens the door to real estate investing for everyone from beginner investors to experienced real estate professionals. New episodes are released every Tuesday. Follow the Vancouver Commercial Real Estate Podcast on Apple Podcasts, Spotify, YouTube Music, or your favourite streaming platforms.
This communication is not intended to cause or induce breach of an existing agency agreement. E&OE: All information contained herein is from sources deemed reliable, and have no reason to doubt its accuracy; however, no guarantee or responsibility is assumed thereof, and it shall not form any part of future contracts. Properties are submitted subject to errors and omissions and all information should be carefully verified. All measurements quoted herein are approximate.
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