Toronto infill developments offer low-risk ROIs

by Neil Sharma on 26 Jul 2019

Monies are typically pooled to finance dense, towering developments, but Foremost Financial has found value in smaller infill projects.

And by dispersing investors’ funds through roughly 150 projects, risk mitigation is top of mind.

“We want diversification,” said Ricky Dogon, chief compliance officer and vice president of investments at Foremost Financial. “We’d rather do 150 smaller deals than 15 larger deals. The effect that any one project can have on the fund is limited this way. If a mortgage makes 1% of the portfolio and gets in trouble, it’s negligible, but if that one project comprises 10% of the portfolio, it’s a different story.”

Foremost mainly finances townhomes and semi-detached, but is by no means limited to those built forms. It also focuses on the Greater Toronto Area precisely because it lends conservatively.

“More than 90% of our loans are in the GTA, and even further than that, around half of our loans are in the City of Toronto proper, and that’s a very purposeful strategy of ours,” said Dogon. “With the Green Belt, Yellow Belt, constrained supply, outdated zoning regulations, strong employment and population growth, that mix of really strong demand and really constrained supply will keep prices pretty high and create a floor where we think prices will in the event of an economic downturn.”

Foremost specializes in construction financing, and because it has little competition, it can negotiate a higher interest rate. While there are no minimum investment amounts, Foremost only deals with accredited investors.

“We do tremendous amounts of due diligence—analyses of neighbourhoods to make sure projects fit there; will there be an end user wanting to live there? Does the project look nice? What’s the building’s track record and do they have previous sales experience on the type of project being built? We do repeat deals with the same builders, too, because it gives us more comfort and we might even extend to them at a higher loan-to-value.”

On its Foremost Mortgage Trust, the compound return was 7.6% over the last 12 months. The firm’s High Yield Fund on second mortgages had 9.6% compound returns in the last year. Its first mortgage fund also had 7.6% compound returns.

“There are no early redemption penalties,” said Dogon. “If somebody redeems two months early, they shouldn’t be penalized. We do very little marketing and a lot of work comes from word of mouth. Our clients are really happy with our service level.”


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