As a participant in the business of real estate finance, I have seen a lot of changes take place. I plan to write about different aspects of the industry over upcoming issues, but I thought I would give some introductory, thoughts in this first issue beginning with what I see as LIQUIDITY IN THE SYSTEM.

There is a lot of money chasing too few deals. I first noticed this trend about four years ago. Not only has it not abated, if anything the trend has accelerated. This is good for the borrowers,as it is giving the borrower access to alternatives at inexpensive pricing. Spreads on takeout commercial mortgage transactions have gone from 175 BP to 200 BP down to 100 BP to 135 BP. In the single family residential takeout mortgage market, discounts off of posted rates have continued unabated. In construction financing, pricing is down to Prime - Prime plus one percent for most good transactions. In the Mezz financing area, yields are down from over 20% to the 12% - 14% range.

LENDER DISCIPLINE - With all these changes, will lenders allow through competitive borrowing practices, the kind of meltdown that happened in the late 1980’s? I believe this answer is no. While the market is competitive, lenders are maintaining a good level of discipline in their lending practices that should preclude a 1989 - 1990 meltdown. Presale, preleasing, loan to value, loan to cost, and borrower equity requirements have remained relatively consistence amongst lenders and this discipline will help the market stay strong over the next while. As an example, there has been concern that lenders were allowing too many investor units to be part of the presale requirements to obtain investor financing and that this lack of discipline would hurt the high-rise market. So far, we have seen no evidence that this concern has materialized.

COMPETITIONS - As there is lots of money in the system, there appears to be all the time, new entrants into the real estate finance industry. Bank of America, Ohio Savings, and Societee Generale are three new entrants into the residential construction industry that did not exist a couple of years ago. There are now nine conduit lenders in Canada, up from just a couple, five years ago. The rise of MCAP and First National as truly large mortgage banking firms, styled on the U.S. model of mortgage banking is a concept that would have been unheard of in Canada a few years ago. These firms have each amassed over CDN$20 billion dollars in assets under management which is good for competition landscape in Canada.

THE GREATOR GTA HOUSING MARKET - We have been blessed to have been in a wonderfully strong market over the past number of years. While starts are projected to drop below 40,000 units for 2006, the market continues to be strong and all the players that I have consulted for this article appear optimistic about the state of the market and the future of the market over the next 12-18 months. With the new greenbelt legislation, prices are up and intensification appears to be here to stay. The condo market is now at a 40% market share and many are predicting that this share could do to 60%, as affordability is a major issue for buyers and the way to deal with the escalating land costs is to sell smaller units. We have seen a number of low-rise builders enter the high-rise market, Greenpark, Andrin, Tribute, etc. and this has been good for the housing industry and home buyer.

In closing of this first issue, the market is strong and both borrowers and participants are optimistic in their ability to get financing over 12 - 18 month periods.