Avison Young Completes $104.8M Finance Deal on Behalf of Calloway REIT

Avison Young, Canada's largest independently-owned commercial real estate services company, announced the completion of a private, structured finance transaction with an aggregate balance of $104.8 million. The transaction includes four Wal-Mart-tenanted, new-format stores in Ontario and was placed on behalf of Calloway Real Estate Investment Trust (Calloway REIT) in early May 2013.

This transaction employs an alternate-debt vehicle that allows real estate owners access to a non-conventional area of the capital stack. By opening up a new source of debt capital, Avison Young is able to assist Calloway with balancing its debt requirements. The terms of the arrangement include a weighted average term of approximately 16 years, leverage of 81% of value and an interest rate of 3.76%.

Norm Arychuk, a mortgage broker with Avison Young's debt capital markets group, was part of the team that brought the parties together and facilitated the transaction.

"By accessing this capital, Calloway gains the use of another debt vehicle that augments the universe of debt funds available in a much more efficient manner than a conventional mortgage execution, through achieving higher leverage at a lower interest rate than typical pricing would provide," comments Arychuk. "Obtaining additional capital by leveraging existing assets in this fashion allows property owners the opportunity to unlock previously unreachable equity to further their business goals."

Steve Liew, Vice-President with Calloway REIT, adds: "This structure allowed us to utilize the strength of our largest tenant by pledging only the Wal-Mart assets and retaining the ancillary retail shopping centre free and clear for future financing. Working with Avison Young's debt capital markets team provided us with a customized debt vehicle well-suited to our particular situation and requirements."

This structured finance transaction is directly tied to 100% of the net cash flow from the tenant after expenses, to establish the leverage at very low debt-service coverage of 1.05 times. "Unlike a conventional mortgage transaction - which would be restricted to less than 70% to 75% leverage and debt-service coverage of at least 1.2 times - we were able to provide greater leverage on a smaller asset grouping and provide Calloway with greater overall flexibility," says Arychuk.

on May 22, 2013