Oakbank Capital Group only entered the market two years ago but is aiming to be the top commercial mortgage broker in the country.
Jonah Brown, one of the firm’s managing partners, said a main proposition for the company is its independence: Oakbank is a true third-party advisor. It’s not tied to any lenders, which allows the firm to operate free from conflicts of interest.
“We don’t have a bias to push you to one source of capital versus the other. We operate with no conflict whatsoever,” he told Green Street News.
Oakbank has seen impressive growth. After brokering about $1.4bn of loans in its initial year of operation in 2022, Oakbank is on track to close roughly $1.7bn of loans this year.
Green Street News caught up with Brown to talk about opportunities, challenges and adapting in a dynamic market.
Oakbank had its second anniversary in May. Can you reflect on any unexpected opportunities or challenges?
The challenge is where we create the opportunity.
We happened to start our business at a time when getting financing became increasingly more difficult. And as a result, the role of a broker becomes more valuable as capital constraints spread in the market.
“The role of a broker becomes more valuable as capital constraints spread in the market”
When times are good, people often like using a broker because they like shopping around and making sure they have the best deal. When times are more challenging, people use a broker because sometimes their incumbent lender, and the lenders they usually work with, aren’t necessarily giving them the terms they’re looking for.
Reflecting on the last two years, we’ve had a huge uptick in business, and the calibre of both clients and deals we’re engaged on is getting better year after year — a combination of us becoming more established and the inherent challenges of sourcing financing today.
In today’s market, it’s simply that there are fewer market participants on the lender side of things — lenders’ credit teams are more conservative. But that creates an opportunity for us because we can add more value for clients.
How do you find solutions in that conservative lending environment?
We do it by having intimate knowledge of the array of lenders and options in the market. Most borrowers have a home bank, and maybe a handful of relationships, but we have 75 or so active lenders we’re working with, and knowing the specific risk appetite of all the different lenders allows us to properly place deals.
“Knowing the specific risk appetite of all the different lenders allows us to properly place deals”
Any time I get a deal in, we underwrite internally. We understand where it falls on the risk spectrum. We know the group of lenders that’s going to want to do a transaction of that nature.
Two years ago, you were seeing a lot of land and construction financing for condominiums and industrial projects. What trends are you seeing now?
Construction loans are still probably the biggest part of our businesses. That said, the nature or asset class of these construction loans has changed. There aren’t nearly as many condo starts today as there were two years ago, because developers are struggling to secure presales, which is a prerequisite to advancing construction.
Instead we’re seeing a lot more purpose-built rental construction, and continue to see industrial construction — which has always been a significant part of our business.
As a broker, you have to change with the market.
You recently brokered financing for a new office build, which seems rare these days. Can you talk about what went into that?
We just brokered financing for two different office buildings. One was 45-47 Shepperd Ave East [in Toronto]. That one closed a few weeks ago, and the week prior we did a loan for office construction.
Both of those are novelties in today’s market. One, because there’s not a lot of transactions — developers and owners aren’t running into the office space. Two, on the lenders’ side, there isn’t a lot of appetite for office.
Both [deals] were unique. For the office construction, it was an office condo. The lender took a lot of comfort in knowing they were already covered and had an exit for the loan.
Lenders’ first question, any time they enter into any loan agreement, is ‘How am I going to get my money back at the end of this?’ If you have vetted the presales in place, and you trust that the counterparty is going to close, it’s naturally easier to get a loan for that project.
The office asset on Shepperd, two buildings, was substantially leased. The developer views that as a great site for residential high-rise in the future. So while they were buying an office building, the way they were looking at it from a business model is more so that they were buying a great piece of land with holding income.
This is essentially a neutral return for the foreseeable future, until they’re in a place to rezone and redevelop it. That was more of a land loan with holding income than a traditional office loan.
How did the ESG component help?
A lot of lenders have a preference for ESG loans, and their credit committees are a little more flexible and offer more attractive terms if someone is leaning into that.
For the office condo — the developer was building to a “Beyond Net Zero” standard, in that the building will create more energy than it will consume, that helped garner institutional lending terms for that project.
When you started, your focus was on the debt advisory business. Has that changed at all?
If anything, we have leaned more into that. When we started the company in 2022, the equity markets were hot. There was a lot of demand for equity, both on people looking to invest in real estate transactions and developers looking to raise money.
As the market evolved, and the need for our debt financing services grew, we realised that’s where our core expertise was, and it didn’t make sense to build another business line and ignore what was going really well. So after about a year in business, we leaned further into our core competency, which is mortgage brokerage.
What is the Oakbank Capital story?
We want to be the No. 1 mortgage broker in the country.
We like to operate with no conflict. I think when you look at the array of competitors out there, a lot of brokers are coupled with lenders, and as a result, people are engaging with an advisor on the other side to operate in their best interest, when in many cases that person actually has a self-interest in pushing a [product] their company benefits from.
“We operate with no conflict whatsoever”
Because we don’t manage any of our own capital, because we don’t service any of our loans, our fees are objectively the same irrespective of where the deal ends up. As a result, we don’t have a bias to push you to one source of capital versus the other.
We operate with no conflict whatsoever.
