March 31, 2022
A Letter from Trez Capital’s President & COO
In the first quarter of 2022, North America continued to see a real estate market boom across many asset classes. This was especially the case in the areas Trez Capital has focused its lending and investment activities. Despite emerging risks, we continued to see strong demand for capital, and find attractive opportunities that fit our risk appetite and investment thesis. Our capital deployment remained robust, and our pipelines continue to strengthen.
The prospect of the world returning to ‘normal’ was delayed in the first quarter due to a rapidly spreading variant and geopolitical events that introduced new risks. Soaring inflation is forcing central banks to tighten monetary policy. The Bank of Canada and the U.S. Federal Reserve have already begun their rate hike march, with upward movement expected through the rest of the year. The increase in borrowing costs will impact consumer behaviour, property valuations, and commercial real estate projects. The market will take time to adjust to the increased costs of borrowing. Marginal real estate projects will likely be delayed or fail to get off the ground completely, however, projects with strong fundamentals will continue.
At Trez Capital, we pursue opportunities to lend and invest with exceptional sponsors in projects that have strong margins and the ability to withstand the risks ahead. Even in this time of heightened risk, strong net inward migration and job growth, where we focus our lending and investment activities, will allow the markets we do business in to outperform.
Residential Real Estate in Canada
The median price of a detached home in Canada climbed towards the $1 million mark in the first quarter. The year-over-year increase was 26.7% from 2021, according to the Royal LePage House Price Survey. The intense increases in the market presented challenges for many Canadians. While a rise in interest rates will impact borrowing costs and the ability for new buyers
to enter the market, the government is signalling a continued strong immigration policy which will continue to push demand. Meanwhile, municipal zoning and building permit processes remain cumbersome, thereby dampening the ability for developers to build. Buyers are unlikely to see any major relief in affordability as demand will likely outstrip supply.
U.S. Real Estate Trends
Pre-pandemic migration across the U.S. began to drive population to the Sunbelt states, including Texas, Florida, and the Carolinas. These states continue to attract people due to affordable costs of living, tax-friendly environments, and job growth. Developers cannot seem to build fast enough in high-demand markets like Phoenix, Arizona where property values have increased by approximately 40% due to the pressure of demand, outpacing the 20% increase in building costs. These dynamics should continue to create opportunities for developers, even in a lower growth environment.
A Year of Growth
As the industry has grown over recent years, we continue to build our team with a boots-on-the-ground approach. In 2021, we grew from 134 to 164 team members. With offices in nine cities across Canada and the U.S., Trez Capital is one of the strongest providers of capital in North American real estate.
We see a year of growth ahead and we will continue to adapt to any market challenges. Thank you to all of our investors for your continued support and trust.
Sincerely,
Dean Kirkham
President & Chief Operating Officer
About Trez Capital
Founded in 1997, Trez Capital is a diversified real estate investment firm and preeminent provider of commercial real estate debt financing solutions in Canada and the United States. Trez Capital offers private and institutional investors strategies to invest in a variety of opportunistic, fully secured, mortgage investment funds, syndication and joint-ventures and provides property developers and owners with quick approvals on flexible short- to mid-term financing.
With offices across North America, Trez Corporate Group has over $4* billion CAD in assets under management and has funded over 1,600 transactions totaling more than $15 billion CAD since inception. For more information, visit www.trezcapital.com. (*Trez Corporate Group AUM includes assets held by all Trez related entities as well as $2.8 billion Manager AUM (Trez Capital Fund Management Limited Partnership)).