Welcome to the 7th episode of the #AskAPrivateLender Podcast brought to you by Mortgage Automator. In this episode, we went all the way East to Atlantic Canada. Our guest is Ryan MacNeil, Director of Alternative Lending at Graysbrook Capital. Graysbrook is a household name out East and is regarded as a highly reputable lender.
We talked with Ryan about the specifics of lending in the Atlantic provinces and the challenges some of these markets might present. We also discussed Graysbrook’s recipe for success, their preferred deals, and more!
Listen, watch, or read the interview below. And stay tuned for more episodes coming up!
Lawrence: Ryan, before we get started with Graysbrook and the products you offer, and the type of lending you do, just to find out a little bit more about yourself, how did you get into the private lending space? Was it always something you wanted to do? Did you have other ambitions? Give us the inside scoop.
Ryan: I have definitely a unique path that I’ve pursued to get into private lending. Probably not similar to most, didn’t follow through the bank path. I was actually originally an engineer when I came out of school and quickly realized that that was not the career path I wanted to pursue. After about a year, I decided to go back to business school. I’d always planned on going to business school, but that accelerated my plan.
I did that and I got into the consumer packaged goods industry actually. I was in Toronto for about a decade. That was an excellent industry, very fast-paced, very competitive, very highly analytical, obviously, sales-driven. So I gained a lot of skills in that space that have helped me transition into the mortgage space and specifically the private mortgage space.
I came over to join Graysbrook in 2017. Graysbrook was originally a family business. It was founded by my father and my uncle back in 2006, they slowly grew the business, and I’m sure we’ll talk a bit more about that, but they were getting to a point where they needed a full-time BDM. They were semi-retired from their previous careers. Neither one of them had mortgage backgrounds either. So they just stumbled into it. Like I said, I joined in 2017, so about three and a half years ago. I basically found out what a mortgage was when I purchased my house about two weeks before starting at Graysbrook.
It was a bit of a learning curve at first, but at the end of the day, it’s just another product to sell. I’m sure you guys are well aware with private lending, it’s not overly complex. You focus on your equity and your exit strategy and those are the two key things. I’ve got to commend the brokers and the industry partners out here in Atlantic Canada as well. They’ve helped me out along the way, and it’s made the transition quite easy. So that’s how I got here.
Lawrence: With your father starting the business, I think you said in 2006, was it something that was always in the back of your mind? Like it’s a business, it’s growing, maybe I’ll be there. Was he someone who was poking you all the time saying, “Hey Ryan, come over here, we have something great for you”? Or was it something that just didn’t really cross your mind until it was that one day where it’s like, “Okay, I’m going to do this.”
Ryan: It was a little bit of poking each other back and forth, I guess, for a couple of years, but certainly we talked about it for multiple years before it actually happened. The timing had to be right, of course. The business had to be at a stage where we could really accelerate growth to justify the incremental hire. But for me, I absolutely loved living in Ontario, I met my wife in Toronto, I had my first kid in Toronto. It was definitely tough to leave and still have tons of good friends up there. But at the same time, being able to come back to the East Coast and the cost of living is a little bit more reasonable out here. It’s several driving factors, having a young family, and obviously the opportunity to join a family business. The stars aligned and the timing was right when I ended up coming.
Lawrence: Let’s talk about Graysbrook. You’re going on 15 years. I know that you just joined in ’17, but I’m sure you’ve heard stories. How has the industry changed where you guys are located from early on to current, or even from ’17 to current? Because there’s a lot of things going on in the world today and people are making moves. They’re pivoting. What are you guys doing right now?
Ryan: Back when they initially started the business, like I said, they didn’t have backgrounds in mortgages, and we were just doing some flips locally in Halifax here. Actually, a pretty prominent mortgage broker had suggested to them, there’s a need for a private lender in Atlantic Canada. You guys should look into that scene. They both looked at each other, and lending money on people’s houses, that sounds crazy, right?
It was very slow for the first couple of years. I’m sure you guys have seen with the tightening of industry regulations, it was great timing for me in 2017 coming in because that was just getting started. That certainly accelerated the growth in terms of private lending market share, and just being established as the primary brand name out here in Atlantic Canada. Our timing was just perfect to take advantage and ride that wave.
I like to remind them that the substantial growth started in 2017 when I first joined. You put two and two together there… But I can’t take all the credit obviously, with changes in the industry and the brand name having already been established to put us in a good position to take a foothold on the market and just continue growing from there.
Joseph: Graysbrook is a household name on the East Coast. If you ever talk to anybody here, in Toronto or anywhere, and they ask, “Do you know anyone out East?” The first name that comes up from anybody, whether you’re talking about trade shows or anything, it’s Graysbrook. I know maybe you might not have as many competitors as some of the people here in Toronto or BC have, but what did you guys do to differentiate yourself from everybody else to make yourself that household name?
Ryan: I’d say the number one thing that we did is having presence. I mean presence at industry events, at broker socials, or whatever it might be. We aren’t the type to just send our BDM to an event, we want to send whoever we can, right? Our underwriter goes, my father and uncle would often go when they were with the business. We’d often have three to four guys at industry events, and it really made it easier.
When you’re in a room with 100 brokers and you’ve got tons of different lenders there, you can almost corner the room a little bit. If you have three or four people there, you’re talking to so many different people, and getting your message out there to so many people and in a short amount of time. When we’d get back to the office the next day, we’d have a little pow-wow and chat about who we talked to, who we need to follow up with, and that shaped our strategy going forward.
I’d say our key thing was having a presence and just being noticed at these events, which is quite important in this industry. From there, I’d say just having a service focus on our broker partners, and speed is another thing as well. We really pride ourselves on our fast turnaround time. I’d say those are the key things, but certainly, presence would be number one in terms of driving the brand.
Lawrence: There’s one thing that I saw on the website that I really liked. I don’t know if it’s changed from what’s going on now, but in-house appraisals. Is that something you guys are still doing consistently?
Ryan: Yes, we do external appraisals for most new deals. But on construction deals, I’ll actually go to a site, talk to the client, confirm their progress. I mean, it’s not too hard to tell if a home is weathertight or not. You don’t always need an appraiser to go out there and check the box. That’s just a little service we offer that can save the client a couple of $100 and make life a little bit easier for them, and you get to develop that personal connection a little bit more.
Lawrence: Product-wise what do you guys do? You guys are doing residential, you’re doing construction. You’re doing reno’s. Tell us what you guys are up to.
Ryan: Yeah, all the standard buckets you’d find with typical private lenders. We started as exclusively residential lenders, your standard equity takeout, or purchases with the strong down payment, but we’ve really found our niche in the last four to five years in the construction and renovation space. That’s really what’s accelerated our growth.
I’m sure as you guys have seen that, it’s tough for brokers, especially to get solid construction loans and even loans that make sense for a client. We often like to make the comparison that if you’re getting a 4.5%-5% rate at a credit union, and you’re locked in there for five years, vs. going to a private lender, getting your construction done in six months fully open loan, you pay us out when you refinance at a 3% or even less than that in this day and age, you might actually save money. You’re certainly going to save headaches by going that approach, right?
So that proposition has seemed to work and resonate really well with brokers and clients. We often get higher net worth, really strong credit clients coming in for our construction loans. Renovations are another key thing too that we focused on and especially in a market like Halifax that’s fast-growing right now. There’s a lot of opportunity to increase value, especially with rentals.
We also are starting to focus a lot more on the commercial side of things now as well. Starting to get into some larger stuff there. So that’s the future growth plans, to expand more into this space. But I’d say, for now, it’s certainly been construction and renovations that have been driving the boat for us.
Lawrence: Forgive me, I don’t know the market that well, I assume like everywhere else, it’s a strong market. Like you were just saying, it’s growing. Is there a big market for building residential homes and reselling, or is a lot of the construction stuff for the individual owners themselves, or the rental projects for the owners?
Ryan: I’d say it’s mostly for the owners, but we certainly do a lot of spec homes as well, but it really depends on where you’re talking about too. If you’re in Halifax or near Halifax, that’s a pretty safe, secure market. It would be comparable to maybe like a London or a Kitchener-Waterloo type market in terms of size. Atlantic Canada is very diverse in terms of geography and the population base as well. You can go an hour outside of Halifax and you’re in a town of 10,000 people where your risk profile is completely different. Not only that, we’re talking about four different provinces as well.
In New Brunswick, you’ve got some uniqueness, there’s a couple bigger cities there that we’re happy to lend aggressively in. There are some areas as well that we might not lend at all. Then on top of that, you’ve got Newfoundland, which is completely different and is a more Alberta-like market, I guess. It can be a bit of a boom/bust based on the economy right now. Very dependent on oil and gas of course.
So we’re much more cautious in that market, at least in times like this, where there’s a substantial amount of unemployment. Stuff might get scrutinized a little bit more there, but we still actively pursue deals, especially in the St John’s area of Newfoundland.
Lawrence: What made you guys decide to expand from just Halifax to PEI, New Brunswick, and Newfoundland?
Ryan: I’d say it was both New Brunswick and Nova Scotia that we started in. It was Halifax and Moncton, Fredericton, St John are the key New Brunswick markets that we started in. The benefit we had, I mentioned none of us really had backgrounds in mortgages, but we’d all lived in several different areas in the Atlantic market, including our underwriters. In most areas of Atlantic Canada, at least one of us would have lived in or would have pretty good knowledge of the market and whether it was a good area to pursue. So that was a key thing for us, and especially going to Newfoundland.
Newfoundland is a significantly different marketing, and it’s actually quite far away. A lot of people are surprised when I tell them it’s quicker to drive from New Brunswick to Toronto than it is from New Brunswick to St John’s. You have to either fly or take a boat to get to Newfoundland, right? Like I said, it’s quite a different market.
Luckily Derek, my uncle, lived there for several years. He worked with ExxonMobil before starting Graysbrook. He has a very strong market knowledge there. In my first couple of years, we’d go over there together, explore some different towns and areas that we were interested in lending in. So I could get a better sense of it, but you know what? It’s just having the knowledge of the markets, I think that’s been the key thing and in allowing us to feel comfortable enough to expand to the different provinces.
Joseph: Sure. Because I know Quebec, which is a six-hour drive from, let’s say, Toronto, totally different rules. Real estate’s fine, it’s strong. But the rules with notaries, instead of lawyers, I wanted to ask you, how did you guys deal with different legal rules and which provinces are more pro-lender and which ones are more pro-borrower?
Ryan: I’d say all of the markets out here are probably more challenging than Ontario by the sounds of it. New Brunswick and Nova Scotia are okay. The process that you have to go through, it’s not so bad from a legal perspective.
Newfoundland, I’d have to say, it again is probably the most challenging there. They’ve got laws that were, I think, last updated in 1949, if I’m not mistaken, stating the max amount a broker and a lender can charge as a fee. The way we typically do it, we’d have a fee of a couple points plus our rate in the Maritime provinces. But in Newfoundland, we had to adjust and we basically shot our rate up a couple points more, and then our fees were kept at 1%.
So that was a bit of getting used to. What we’ve done to adapt there is just, we’d typically do fully open mortgages. In Newfoundland, we have some that are closed terms just to allow us a little bit more flexibility, but we always maintain that flexibility with the broker and the client as well.
If someone’s had a perfect payment history and they have an opportunity to move on from the loan, we’re not going to stop them and charge them a three-month interest penalty in every single scenario. We’re always flexible with something like that, it’s just more so to protect us if need be.
Lawrence: Have you ever thought about coming to Ontario?
Ryan: It’s definitely something we’ve discussed. With COVID now that’s put everything on hold in terms of something like that, but Ontario is a market that certainly interests me. I think there’s obviously a lot of private lenders there already. We’d have to have the right proposition to bring into the market and have to be the right timing.
I think I mentioned earlier, there are some comparable markets still out there. We wouldn’t necessarily go there just being like we got to be GTA. We might actually look at other markets, whether it’s Southwest or up in the Ottawa area, that could be in our plans down the road. We’ll see how the next year or two play out here with the disruption we’re dealing with at this time.
Lawrence: You advise people on where to invest their money. People have a tremendous amount of trust in Graysbrook when they give capital over, you’re going to do obviously the right thing. I’m sure over the years you’ve met people that have substantial wealth, right? They may give you a sliver of what they have. What have you learned? Have you learned anything from any of those types of individuals that stuck with you?
Ryan: I’d say the biggest thing that stands out from these higher net worth investors is just their drive and hunger for business. Constantly looking for that next deal or that next way to grow their business, or to grow their own personal wealth.
The other thing is that they want to know exactly what you’re doing. Not necessarily down to which property you’re lending on and at what loan-to-value, but more so what you do as a business, and why they should trust you with their half a million dollars, or whatever it might be. That’s the biggest thing I’ve learned, and it’s helped motivate me to always be prepared, know your products, go in there with the story and be able to answer any questions or concerns they may have. I’d say that’s the key thing that stood out.
Lawrence: Do you investors typically come to you and they say, “Hey Ryan, I have $100,000 or $200,000” and then a month goes by, they get their first payment with their bank, they like what’s going on, and now they come for real, and they say, “Okay, this is really what I want to put in.”
Ryan: We’re structured a little bit different now that the business has been acquired. So we actually just have one investor now. But before that, we had tons of investors that would come in and do $50,000 or $100,000. Then once they realized how well and how secure really their funds were, they got excited and they wanted to put in more and we never had issues at any point raising capital. Because enough of these investors whether through word of mouth or themselves wanting to invest more, we’d often have a waiting list coming in the door to want to invest with us. So it was pretty cool to see that success.
Joseph: Clearly you guys are doing something right, there’s a line up of people ready to give you guys money. Tell us a story, a client that you clearly remember, that stands out from the rest?
Ryan: We’ve had fraudulent checks before, I remember this one, in particular, it was literally a completely fraudulent cheque. I can’t remember if the money actually passed through, I don’t think it did. I think it was identified right away. That was actually before my time, but it was almost shocking to see someone try to push that through, their handwritten cheque or whatever it was, to try to send us $100,000 to pay off the mortgage.
One that comes to mind, and it’s more of a unique deal than a client, I guess. Just talking about the relative size differences in the markets out here compared to Ontario and other markets, we had this one deal and it was downtown Moncton. So a pretty good size market for us, but we’re still talking a population of 120,000 people. There’s this castle, right downtown Moncton. It’s not like a castle in a big residential subdivision or anything like that. It’s literally like a standalone, it’s the only thing there.
This had changed hands a couple times. I think it used to be some sort of royalty, and then it might’ve been a seniors’ facility at one point. Then this property was sold five or six years ago. I think the asking price was $1 million. There was someone interested, and they only had 5% down. They actually found a private investor from outside of Atlantic Canada to come in. They funded 95% of this.
Then, I think within a year, this place had gone completely sideways, there was no value in it whatsoever, and they ended up selling it for $300,000 or $400,000. Whoever that investor was, whether they were actively engaged in private lending or not, they’re probably not doing it anymore after a shock like that.
But my point here was that a couple of years later someone had acquired this, probably for pennies on the dollar, and they converted this castle space into these high-end condos. I think it probably has 10 to 12 units in this place.
They were 80%, 90% complete, and then they reached out to us, looking for a little bit of money to get to the finish line. This is when we went into it being like there’s all this bad history with this castle and this and that. We went into this property and within minutes we were looking at each other being like, we’re all over this, we’re doing this deal all day long. Everything was pristine. It was beautiful.
We felt completely secure with our loan to value on this. I think we were sitting at 40%-50% loan-to-value, but you’re still unsure because it’s such a unique property. Anyways, the deal ended up going flawlessly, the client was great, got the place done. It’s all rented up and we’ve been paid out. So it was just one of those things that your timing has to be right. But you got to know the geography and what you’re lending on.
Lawrence: It’s a great story. I was hoping it was going to end with, “…and now I live in a castle.”
Ryan: Yeah, we’ve had those discussions before in those certain deals where we’re looking at each other like, “Well, if this one goes sideways, at least you’ll have a new house to live in.” But luckily for the client on this one, everything went smoothly.
Lawrence: You guys deal with brokers, who do brokers call to submit a deal? Who should they get in contact with?
Ryan: Most brokers know our underwriter James really well, and they’ll go directly to him. But often people will come directly to me as well. We don’t really mind if you reach out to myself or James, that’s probably your best bet is to go through one of us.
Joseph: Obviously you can be found on the dropdown menu of Filogix?
Ryan: Honestly, I meant to mention that guys, that’s been incredibly helpful and smooth for us as well. We’re so glad we were one of the early ones to jump on with Filogix. It’s made the process very seamless for brokers, submitting deals. It’s made it easier for us to underwrite and analyze deals having them come in. James will often get some applications that don’t come through and he’ll almost push back and our brokers saying like, no, you need to be on Filogix to do this, or else, you’re going to be waiting for another half day to get a response.
Lawrence: We have a little segment called Would You Rather. It gives us an idea as to the type of deal that you like, an overall of what you would prefer to see. It has to do with rate, value, and all that sort of stuff. So number one, are you the type of company that wants to write one big deal or several small deals? What do you guys prefer to do? $1 million loan or 10 $100,000 loans?
Ryan: I guess for efficiency purposes doing one would be better. But I think if I had to choose one of the two, probably the 10 smaller deals, just to spread out the risk a little bit. But I’d also preface that by saying that we used to lend on $70,000, $80,000 properties, and we’d feel pretty good at 50% loan-to-value, maybe even 60%.
I’m sure you guys have been through the process before on lower value properties. You don’t have much room for error, no matter what your loan-to-value is. So I’d say if it was a one $2 million deal versus 10, $200,000 deals, I’d probably choose the 10. But in this scenario, given the values, I’d say maybe the one larger deal might be best overall.
Lawrence: I’m sure you get calls, “Hey, I have a great deal for you, Ryan. It’s 50% loan-to-value, it’s $40,000 on a $80,000 house. You’re like, “Well, let’s see legal, real estate, problems…”
Joseph: There’s nothing left.
Ryan: We’ve had to change our minimums in terms of property values to reflect that, and it’s just reflective of the market here. There are so many smaller areas with lower value properties. In certain scenarios, it makes sense, whether it’s a blanket scenario or if you’ve got someone with pristine credit that is easily going to be able to refinance to a bank in a year’s time. But for the most part, the opportunities we get, we want to see a certain minimum property value.
Lawrence: What about from a yield loan-to-value perspective? Would you rather do like, and I don’t know your rates, but would you rather do like a 50% loan-to-value deal at your lower end of the rates? Or do you rather go to the higher end, 75% or 80% loan-to-value to get a much higher yield for your fund or your investor, whatever you guys have set up now? What would you prefer?
Ryan: I think it depends on the credit profile and a bunch of different factors, but I’d say, probably in that scenario, the lower yields overall, just to keep the security with the loan devalue perspective. Just because we didn’t see, until recently with COVID, it’s accelerated prices out here, but for the most part, prices are very stagnant.
In Atlantic Canada, you usually see a 1%-2% price appreciation per year. So if you’re starting off at 75%-80% loan-to-value, you don’t have much room for error on something like that. If you get into years two and three, if things don’t exit the way they were supposed to, you could get into some trouble. I’d say in that one, yeah, probably the lower loan-to-value with the lower yields. If we’re talking about someone with stellar credit too, you know it’s a good deal. You may be secured on a couple of properties, in that scenario, I would obviously prefer a higher yield, a higher loan-to-value.
Lawrence: Credit is a factor for you guys. You’re not fully on the equity train in terms of like, “Yeah, whatever, if there’s equity, I’m going to do it.” Or I guess you’ll go higher. I guess if the borrower is a good borrower, you trust they’re going to make the payments and they’re going to be okay at the end of the day.
Ryan: I wouldn’t say it’s a driving factor for us. Equity and exit is what it’s all about at the end of the day for us. A secondary factor is credit. That’s really, like you said, if we’re going to go 75%-80% on a given client, we need to have some sort of comfort that they’re going to be able to repay and service the loan.
I’d say for that, we would look at credit as a secondary factor. But there are certain scenarios too, right? Where people have all sorts of reasons, their credit might be at a 580 because of high utilization or from a missed cell phone bill, or something like that. We’re happy to pursue something like that regardless of what the score is.
Lawrence: What about low LTV with bankrupt clients?
Ryan: I’d say it comes back to a geographic location. Marketability of the property would be the key thing to look at there, and geography probably being number one. In that scenario, in a rural area, we probably wouldn’t pursue something like that. But I feel like I’m being unfairly harsh on a lot of the rural markets, as we talk here. We started originally and we still do, we don’t have any geographic restrictions across all of the Atlantic. We still want to see brokers submit those deals. It’s just, when you’re in those more rural areas, obviously there’s more due diligence being done in terms of proceeding with the deal.
Lawrence: For brokers, listening to this, maybe brokers who’ve never sent Graysbrook a deal before, give that pitch, why should they send to you? What deals are you looking for just to have an idea?
Ryan: I’d say, just send it to myself or James. Even if it’s not a fit, we still look at that as a coaching opportunity, or an opportunity to establish a relationship with a broker, or talk about our lending parameters, so we still want to see those deals come in.
In terms of our parameters, like I said, we don’t have any restrictions on geography, but obviously, in those more rural areas, we might be at a 50% loan-to-value. But in the urban areas, like Halifax, Moncton, St John’s, we’ll go up to 75%, even 80% on exception in some of those areas. That’s the key thing too.
The other thing, I touched on it already, it was just with our construction loans. We really feel we stand out above other lenders here, whether it’s a bank construction loan or a credit union scenario, we think the flexibility you get with our product, the fast turnaround, not having to jump through those same hoops, it just makes logical sense, whether you’re someone who’s had some credit challenges in the past, or you’re someone with stellar credit, you might be business for yourself.
Those are the clients that we’re really chasing after. But at the same time, people with those credit repair situations or that are equity rich and cash poor, we’re all over those deals too. I’d say right across the platform, we want to see the deal. We want to chat with the broker. So keep reaching out to myself and to James.
Lawrence: You heard it here from Ryan directly, what he’s looking for. I always say to people, give them a shot, what do you have to lose? Don’t send them the deal where you’ve sent it to 55 other people, and everyone said, no, this is a bad deal. Give them an honest chance, learn the process, see what they’re all about. They have the name for a reason, they’d been around for a long time, for a reason.