September 30, 2020
September 30 2020 – Trez Capital Investment Update — Third Quarter 2020
Letter from Trez Capital’s Chief Credit Officer
On the eve of the U.S. presidential election, the third quarter saw the continuation of market volatility driven by geopolitical and pandemic-related factors. Questions remain about the longer term effects of COVID-19. In this climate, we remain cautiously optimistic as we prudently manage our investors’ capital.
Trez’ strong performance and steady growth in key markets since inception, as well as our resilience through the uncertain economic climate of 2020, continue to be driven by our disciplined capital-deployment strategy. There are two key components that guide how we pursue opportunities and allocate capital: our well-defined market focus and strong underwriting standards.
We have been well-served by focusing on the real estate market segments that hold the least amount of risk and the strongest fundamentals. As such, residential and industrial properties continue to represent the majority of our portfolio.
Centred on affordable residential properties
Our residential strategy is centred on the affordable end to middle of the market, which is supported by broad based demand from renters, less expensive construction costs and quicker construction timelines. We tend to avoid high-end luxury residential housing, as it’s more vulnerable to economic slowdowns.
As a result of our tremendous growth over the last five years, we have been able to maintain our risk profile and diversify across a wider range of markets, including large U.S. metropolitan areas
with strong, long-term fundamentals. We favour markets such as the Dallas-Fort Worth area. This market boasts high net migration and a business-friendly political environment driving investment and employment across a well diversified set of industries that are the source of jobs.
Increased selectivity and stress testing
Despite the volatility over the last quarter, there has been ample demand for capital from high-quality sponsors, due in part to the limited supply of credit during the downturn. These conditions have provided us with a strong pipeline of high-calibre opportunities and have afforded us the ability to be more selective with the investments we pursue.
While we have remained sharply focused on our core markets and have applied the same rigorous underwriting standards, we are undergoing more stringent stress testing in the current environment. Any financing that we decide to pursue must demonstrate strong resilience to potential risks.
Focused on strong fundamentals in a time of uncertainty
Despite market uncertainties, we firmly believe the asset classes we chose to finance will continue to be driven by long-term demand factors, and our approach will provide stable returns that are less correlated to volatile public equity markets.
We remain confident in the strength and conservative positioning of our portfolio. With our proven capital-deployment strategy and ability to capitalize on steady real estate demand in our core markets, we believe we are positioning our investors and partners favourably in an uncertain market.
Sincerely,
Dean Kirkham
Chief Credit 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 offers private and institutional investors strategies to invest in a variety of opportunistic, fully secured, high-yield mortgage investment funds, and provides property developers and owners with quick approvals on flexible short- to mid-term financing.
With offices in Vancouver, Toronto, Dallas and Palm Beach, Trez Capital has over $3.8 billion in assets under management and has funded over 1,500 transactions totaling more than $11 billion since inception.