March 12, 2020
Given the recent events surrounding the Coronavirus outbreak and market turmoil, we wanted to take a moment to update you on how Trez Capital is dealing with these circumstances and how it affects our outlook.
Trez has taken steps to manage its business through the current outbreak. In an abundance of caution, we have cancelled all non-essential business travel and have cancelled our scheduled client events on May 5th and May 7th. We believe that it is essential to preserve business continuity and we are taking all relevant steps to prudently maintain our daily operations. We will be hosting webinars and conference calls in order to keep you informed. We will be communicating more information about this shortly.
Trez is monitoring the evolving lending environment very closely. The recent actions to lower interest rates by 50 bps by the Federal Reserve and Bank of Canada were unanticipated and should be helpful to our borrowers. Borrowers and lenders are reviewing their projects and pipelines under this new interest rate environment. Our current loans will not be affected by lower interest rates due to the interest floor. In other words, the yields on our current loans are unaffected and distributions will be maintained.
Additionally, if traditional lenders reduce their lending activity, this may present an opportunity for Trez. We will continue to be vigilant and seek high quality opportunities with the best developers. As private lenders on real assets, we have the flexibility to capitalize on opportunities.
Key Loan Metrics
At Trez Capital, capital preservation is our first priority. We have the experience and know-how to deal with challenging times. All of our funds have succeeded in maintaining their $10-unit value. Prime Trust, our oldest fund, established in 2006, has maintained its $10-unit value through the global financial crisis and market corrections. We expect to maintain our performance across all of our funds.
Oil Prices, Alberta and Texas Exposure
The sudden drop in oil prices will likely have an impact on the Alberta economy, though it is too early to gauge at this moment. We are monitoring our current loan portfolio in Alberta very closely and our exposure is primarily in multi-family and industrial projects, which remain healthy. Going forward, we will be analyzing investments only a very selective basis with the leading developers.
It’s worth noting that we have seen these sudden drops in oil prices before. In 2014 oil was trading as high as $114 before falling to a low of $26 in 2016. During that period, we were able to quickly reduce our lending activity, while rotating our loans to multi-family and industrial projects, when the market stabilized. Our experience during difficult times means that our Alberta loans remain robust and we will continue to manage our exposure actively.
The Texas market is significantly more robust than Alberta’s. We are active in the 4 major cities of San Antonio, Dallas/Fort Worth, Houston and Austin. The Houston market is the most sensitive to oil price shocks, but even there its impact is manageable. During the 2014-16 oil price decline, we had loans in residential lot development projects in Houston. These loans performed very well. Indeed, the Texas economy is far more diversified and robust than many imagine. It has an economy equal in size to Canada’s with a total population of 29 million people. Its overall affordability and the absence of a State income tax has led many businesses and people to relocate. We expect this trend to continue unabated. Indeed, we believe that Texas represents one of the very best investment opportunities in real estate globally.
Trez, now more than ever
At Trez, we believe that our funds are better positioned for the future than they have ever been. With our 140 employees across 5 offices, we have the depth and capabilities to provide the stable, income-producing experience our investors appreciate.
This market volatility only highlights our unique advantages, including:
Trez has enjoyed significant growth in its lending platform and investor base over the past five years. We are committed to serving the needs of our borrowers and investors and wish to emphasize that we are very well positioned for the future.
The chart represents growth of $10,000 in Trez Capital Prime Trust since 2016, of series F units, dividends reinvested. For more information, please contact your Trez representative.
Thank you for your trust and please feel free to contact your Trez representative for additional information.