Welcome to the 15th episode of the #AskAPrivateLender​​ Podcast brought to you by Mortgage Automator. In this episode, our guest is Reid Quan, Director of Business Development & Real Estate for Breakwater Investments based out of Burlington, Ontario.

Breakwater Investments is a family office, which makes Reid the first guest on our podcast to represent this type of lending business. We talked about the lending specifics that come with it, Breakwater’s preferred deals, as well as how they managed to work through the pandemic.

Listen, watch, or read the interview below. And stay tuned for more episodes coming up!

Lawrence: One of the things I’m always curious about is how people got into the industry. Tell us your story, how did you get started with Breakwater?

Reid: I’ll actually go way back because I think that kind of ties into the full story first. My passion for real estate in general really started at a young age. The earliest memories, I honestly think like seven years old. I’m grateful for that because I had family members who were very passionate and put it in front of me, but also, it was like this thrill of the hunt, finding a property for a family member, helping them, being the assistant, and really kind of sinking your teeth into it. 

Real estate’s always been top of mind for me and something I saw myself going into eventually and I got old enough and sure enough… I really actually started in the home building and land development industry. It was where Joseph, maybe you would have met me or knew about me all the way back then, was working for a company called Curb Signs.

Joseph: Yeah, I did.

Reid: Yeah, for the land development and then home building industry. Love that industry, honestly didn’t think I was ever going to leave it. I ended up working for a home builder that supported my thoughts and really felt like this was home for me. Then one day, I had a conversation with the CEO of the company and he said, “Reid, I think you should learn more about the financing side of these projects and become more well-rounded that way. You’ll learn about even exits and things like that, that could be beneficial in your career.” So, I ended up leaving the home building company and found myself trying the financing route.

I hooked up with a company called the Financing Hub, specializing in commercial mortgages, and from there I kind of took off. It added another layer of where I felt at home, and about two and a half years after the Financing Hub, I stumbled upon this little family office called Breakwater Investments. It’s not that little, but at the time I was like, “Family office? Don’t know much about that.” Didn’t really have much experience with that, so did a little digging, essentially connected with a few people here, and, next thing you know, I was the next business development manager for Breakwater investments.

Lawrence: It sounds like a good progression to go from understanding real estate and building and that whole world to the financing side. I think it would be strange to go the reverse way where you’re lending money and you don’t have all that experience. I think it’s great to get that experience and then jump into the financing world. Obviously, not something that you saw happening, but over time the progression is there. That boss that you had, very interesting that he kind of saw that that could be a passion of yours and direct you to a different area.

A lot of the times when people have a great person they’re working with, it’s like, “I’m going to hold on for dear life. I’m not going to encourage them to maybe leave me.” So, kudos to that individual, whoever that is, and wherever you are, you’re obviously doing a great job there. 

Let’s talk about Breakwater Investments. It’s a family office in Burlington, I’m assuming that mortgage investment is just one arm of what they do, because typically, family offices do a lot of things. In that one arm, that investing into mortgages, you’re the business development director. So your job is what, to reach out to brokers, to bring in more business? What is your overall goal working with Breakwater?

Reid: You hit the nail on the head. Number one, Breakwater is multifaceted, it’s not just lending, which is the primary function of Breakwater investments. However, we also focus on actual ownership of real estate and holdings, but in terms of my specific role and what I’m responsible for, business development of course, like you pointed on, working with lots of brokers, other lenders, realtors, really bringing in mortgage origination to our team. Then also, looking for properties as well. We do a lot of partnering with people, we look at different opportunities to purchase properties and other investments as well. It’s a wide array of what we look for, there’s no one set opportunity on the acquisition side, let’s say, we’re open to many different property types and asset classes. The lending side has been more specific.

It’s something that a lot of people don’t know, what a family office does and how it translates to lending. We like to call ourselves specialists, put it that way. We really look at single-family, multifamily, industrial, mixed-use, and blanketing portfolios and things like that. So, very specific, I would say actually very applicable to today’s market right now. I think multi-family, industrial, both of those are shooting through the roof activity. Those are the main kind of property types we look at. We’re, I would say, maybe a bit more conservative than most, so 65% loan-to-value is our max. I think we’re competitive in pricing, we’re typically around 7.5% for rates, 1.5% for fee, and we do transactions anywhere from $250,000 up to $5,000,000.

Joseph: What’s interesting, Lawrence, is that this is actually the first time we’re interviewing someone who’s coming from a family office background. Usually, we’re dealing with either syndication or a MIC or some sort of other fund type structure, so it sounds like there’s a little bit more flexibility from just being able to put out X amount of dollars. 

Certain funds don’t either like to do small stuff or big stuff, you guys are kind of doing a bit of everything. You have that flexibility basically, to have an understanding of a wide range of real estate, like industrial, commercial, residential obviously, multi-family. 

How has it been being able to get deals approved? What would you say is something that, without them having to follow certain compliance protocols, having it be their own money, what gives, do you think, you advantage at Breakwater?

Reid: You summed up a lot of key points there. Flexibility, I think, is the right word to use, Joseph. I think that’s something that really applies to us. You touched on cheque size, you touched on a couple of things there that I think are our value adds and not having, I’m going to call it ‘red tape’, it makes it very easy to get deals done quicker and more efficiently. I think the underwriting process becomes faster if you have a set criteria, and, of course, you want to stick to as much of it as possible. However, not having to run it by a full committee or a large team, where everyone has their input, it allows us to make decisions quicker, and, therefore, I think the whole process of getting the funding faster is just much smoother.

Joseph: When you talk about the red tape, I guess, someone calls you, hypothetically, they’ve got a deal, it sounds like it’s going to fit within the box. You can pretty much, knowing that they’ve got the capital available, it’s within the guidelines, you can be like, “Oh yeah, absolute slam dunk, send it in.” You’ll have a term sheet in basically 30 minutes.

Reid: Yeah, being equity-based lenders, we’re looking at that property, making sure that the LTV is there and has the right documentation and profiles available, it checks off a lot of boxes immediately. Then, like you pointed out, making decisions and being able to issue papers becomes a no-brainer and very quick when we have all the right information upfront.

Lawrence: What’s the turnaround time? Let’s go from a simple deal that’s a no-brainer that you underwrite all day long, to something that’s maybe a little bit more complex. What do brokers really get with the service there in terms of getting a term sheet or closing a deal?

Reid: Realistically, brokers that I work with very frequently, very much understand how we operate which is, provide as much as possible upfront. We have some specific documentation that we’ll provide you, that helps you track where you are, and now, being on Mortgage Automator as well, it makes life easier to keep track of a lot there as well. Once again, very grateful for that, it’s a huge help. Being able to issue, let’s say, a little guideline of ‘we need X, Y, and Z’, really minimal documentation, once we get that in, our turnaround time internally for reviewing it and understanding that deal and really sinking our teeth into it, 24 hours in most cases.

I think we get funding in most cases, somewhere between five and 10 days later, for most property types if that documentation is upfront, once again. We’ve done deals as quick as 24 hours to 48 hours on rushed cases, and we’ve had some massive transactions that have been weeks and weeks and months, as you guys know.

Lawrence: What I like about family offices, there’s no clear black and white box. You guys make a decision on any deal at any point in time, whether you want to do it, or don’t want to do it. It’s not like you have a list of investors that you need to go through and find, who’s it going to be right for, or you have a memorandum that says you’re only going to invest in this black and white box. You could really do whatever you want.

Joseph: You could change the guidelines anytime you want, someone’s in a good mood one day, “Sure, why not? Let’s write this deal for $3,000,000.”

Reid: Just because it has happened, we’ve been a part of it, is the fact that during the height of COVID, we really tried to tighten up what we were lending on because we didn’t know the appetite, we didn’t know the risk profile. We didn’t know how things were going to change. It became an interesting time for us to really, really care about what the money’s going out towards. It’s a very interesting situation no one has ever gone through before, really. That was one aspect of this, so that’s a great point, and then the other point I think is we do have this criteria, of course, every lender has that set criteria that they want to stick to as much as possible.

But being that we are based out of Burlington, we love deals in our backyard. We know the properties very well, we know the areas very well. It’s an easy decision for us to say, “Okay, it’s 67, 68, 70% loan-to-value. It’s worth it on this one. So, we’re able to adjust that, like you said, on the fly and really understand the value a lot more when it’s a little bit closer to home. Even pricing, we try to go in for an all-in 9%, roughly, yield, and sometimes we want to be competitive and really, really win that deal. It’s a no-brainer opportunity, okay, we’ll make it 8% or 8.5% or something like that to be competitive and win that opportunity.

Lawrence: That’s all in, so I’m assuming you’re talking first mortgages, in that range. Do you guys do seconds at all, or is it strictly a first mortgage office?

Reid: No, we’ll do some seconds as well, we have a couple on our books still. We don’t advertise, let’s call it, as something we look for day-to-day, but we’re not going to turn down a low LTV opportunity for a second mortgage, and especially if it’s in a geography that makes sense. But, primarily first mortgages and, like I said, just really open to seeing what’s out there right now in Southern Ontario.

Joseph: What would you say some of the challenges are with working with a family office? It’s not going to be your internal stuff, but is there something that’s maybe a little bit harder or something that you’d like to do that maybe you aren’t right now, that you could see in the future really opening up?

Reid: I would say some of the challenges are, and I’ll use specifics, this family office, 65% loan-to-value does hinder some opportunities. Of course, being conservative and finding the right deals is paramount, but sometimes it’s 67, it is 70% and it might just be outside of our preferred areas, but we have to pass. Just not good enough, unfortunately, to do it ourselves under a first mortgage. Maybe an A/B split with somebody else or maybe a first and second opportunity as well, we’ll consider, but being that we are primarily first mortgage lenders, that’s a challenge that we will see. And also, just right now with rates and how things are, we’re not seeing as much residential as we typically would. We’re seeing a lot more commercial, which is fine by us, it’s something we pride ourselves in, but the residential deal flow, just being competitive with that pricing is also tough because we still need to produce a respectable yield for the family.

Lawrence: Yeah, I think everyone is doing res right now, the rates are being compressed. The fact that you guys are able to write commercial deals is…

Reid: A huge advantage for sure.

Joseph: Huge, because not everyone does and not everyone understands that business. So, talking about commercial deals, because I think everyone’s looking for a great commercial lender, right? Because commercial deals float around, where do we send them? We don’t know what to do. What kind of commercial products are you writing on? Are they gas stations? Are they multi-res which you talked about earlier, so I guess that’s a yes. Expand on what you’re looking for on the commercial side.

Reid: No problem, and to really hit home on what’s in our wheelhouse, it is truly multifamily. That’s probably what we look at the most and now, like I was alluding to earlier, industrials are really creeping up for us. We’ve seen a lot of industrial deals come in lately. Very solid deals, opportunities that would probably have been slightly on the back burner to look at, just because we know we can take a little bit more time when the residential deal flow is coming in a lot more. So, now that it’s there and now that we’re seeing a lot of it, it’s something we’re very keen on because we do have some expertise and quite a lot of experience in a bunch of these spaces.

Those two for sure. I would say the mixed-use as well is something we’ve always been pretty keen on. Especially, because we’re in that Hamilton Golden Horseshoe, we do see a lot of those types of properties on your main streets and your downtown smaller cities. We get a chance to look at a bunch of those, which is great. The one thing that we’re really kind of avoiding right now, and many commercial lenders will probably say the same, a lot of hospitality, restaurants, gas stations, hotels, things like that. Retirement homes, things of that nature as well. It’s just something we’ve never been really keen on, however, we’ve made exceptions. Those are kind of the ones that we typically would not actively seek out, and currently it’s something we’re definitely not interested at the moment.

Joseph: I still think it’s a broad range of properties, especially because you’re opening up the entire Golden Horseshoe, basically the entire 401. There’s a lot of real estate across that highway, so I don’t think that there should be a limited amount of business. I think you guys are probably fairly busy at this point, it sounds like.

Reid: I would definitely say busy is the right word, and grateful to be so. I know there’s a lot of people right now, too, that are just seeing a lot of recycled deals. They’re seeing opportunities that are just really not up their alley. It’s been nice to have some steady deal flow of the types of deals we want to see, and I really applaud our broker relationships for that. There’s a lot of hardworking brokers out there that really work hard to get those types of deals to us, and it’s something that we wouldn’t be here without them, that’s the way we do our business.

Lawrence: You guys are on the Filogix dropdown, people can find you, they can submit deals to you. Do you prefer brokers to reach out to you first to introduce themselves before they send something over, or like, “Anyone send, we’re happy to look at it.” What’s your process for vetting the brokers, meeting the brokers? Who should they contact? I guess it’s you.

Joseph: Since it’s a family office, are you looking to just have 15-20 extremely close relationships with the same people over and over again, unlike other people in the industry who might have 200 brokers sending them a deal every three months. What’s your outlook on that?

Reid: Ideally if we can have, I would say, at least another 20-30 that are very close brokers that’d be ideal because that would really prop up our close base. We have quite a good stable right now, however, I’m always interested in meeting new people and the brokers who have the eye essentially, to understand our value add and what we’re in the market to do. That’s really what I care about the most is finding the right relationships. If it turns out to be five more new brokers for the rest of this year that are fantastic, then I know I’m going to be happy with that because I know I can trust them to provide those types of deals.

But, to answer your question Lawrence, I love meeting new people, it’s an important part of my role. I love the conversations so, of course, I would ask anyone, feel free to get to know me. Call me, email me, get a chance to set up something with me because I think that’s going to go a long way for you. You’ll learn a lot quicker than reading from a website or a screen, and I get to learn more about your sweet spot and what you look for and vice versa. It makes it a little bit easier to just start back and forth of doing deals together. Being on Filogix, being on Lendesk now, of course, we’re always monitoring through the Mortgage Automator platform trying to make sure that we’re seeing everything and catching everything as they come through.

Excited to be on because that’s something that was a big goal of ours, to get more exposure, especially as a family office. Not a lot of people know what a family office does and everyone’s thinking about MICs and administrators and most of the sexy terms. We’re probably not as sexy, so it’s a nice way to be able to receive deals through technology, which is something we’re proponents of and allow us to be able to capitalize on those opportunities pretty quickly.

Lawrence: From a family office perspective, how do you market yourself? Because family offices typically don’t want to be on the billboard, they don’t want to be on the television commercial. It’s like their own little office and they do a lot of business out of that office, but it’s kind of like you got to be in the know to deal with them. This is a way to be able to start a relationship off just simply by sending deals through Filogix or just picking up the phone and calling Reid.

Reid: We’ve kind of had this internal discussion about how we would categorize ourselves. How do we advertise in a manner that is in line with our values and our core principles and not throwing everything out on billboards, like you mentioned. I would consider us sophisticated but also humble. It’s a fine balance of ‘we know what we’re doing, we don’t necessarily need to blast our name out there’. 

We’re looking for the right types of deals, we’re looking for the stuff that makes sense to us because, like you both have touched on, we have the capital. I think we’re very easy to work with. Our goal is to be the most approachable private lender in Ontario. We wake up to it every day, so that’s something that we want, and through those keywords, being sophisticated, humble, understanding of who we’re working with, to me, we’re well on our way.

Lawrence: You’ve been in the mortgage business for a little over five years now. I have to know, your most memorable deal over that period of time.

Reid: Going through the memory bank here but, I think the deal that stands out to me the most was one of the first deals that everything really clicked for me, if that makes sense, and said, “Wow, I worked on this from start to finish and it went smoothly.” It was fantastic, all parties involved were top notch people and I still talk to both people involved in that transaction today, quite frequently, so it’s really cool that way. It was a larger transaction, it was actually up in the Muskoka area, believe it or not. It was an industrial type deal, it was a property that the owner had very, very big dreams for and aspirations and was in a very good position to do what they wanted to do.

It was a nice way to see the entire process come together with the borrowers being happy, I think everyone on the lending side and the broker side coming together and working extremely hard to get it done. It’s an area that is sometimes underserved, or it’s an area that is not as popular as well. So, to actually get a deal done of that magnitude, I think it was north of $7,000,000. It was a really cool opportunity to be a part of, and one that was somewhat towards the beginning of my career. I really thought, “Wow, this really clicks and I’m in the right spot. I’m on the right side. I know what I want to do,” and here we are, five-plus years later. It was very memorable.

Lawrence: North of 7 million in Muskoka, that just shows you, family offices can do anything.

Joseph: Yeah, family offices, there are deals to be made everywhere. It’s a really cool industry to be in and glad to see that you’ve started from one side, you’ve been doing this now for five years, and there are a lot of cool things you’re still going to experience over time. You’re going to see some cool, crazy stuff with deals. Lending in COVID, it’s funny, people tell us about the 90s. The 90s, it was a disaster.

We’ve gone through ’08, we saw what happened in ’17. There were 40% increases and definitely 35% drops. If you were buying or selling at the wrong time, it was bad for you. And then COVID, to lend money to people during a pandemic. I hope we never have to go through it again, but it is something we did experience and it looks like overall, the entire private lending ecosystem seems to be doing well through it.

Lawrence: You know what it is? It’s scary because no one’s dealt with it before. It’s not like you can look back and say, “Oh no, this is what happened 10-20 years ago.” 

Joseph: I would have calls with guys and I’m saying, “So what are you doing during COVID?” “Oh man, I’m going right, I’m putting my head down and I’m going to…” It’s funny because luckily it worked out for them and I’m really happy for these people, and they’re good friends of mine. Then, there are other guys who are like, “I’m not touching anything for four months.” It could have also been the right… maybe that was a little bit too long of a hold-off but the point is, they were concerned. They were worried that prices could drop 40%. We didn’t know how bad the virus was.

Reid: I’ll be transparent with you because I totally want to comment on this. I actually made a lot of calls during this time and, Joseph, you might actually have been one of them, for sure. I think about it, what you guys were up to, and I got a wide array of answers. Like you touched on, it was people who are bullheaded and going through it and, knock on wood and see what happens.

There’s a lot of people who were full stop. I would say we were on the more conservative side and we definitely took a breather because we still were lending, just a lot more cherry-pick type of deals. Decided, you know what, it’s not worth it right now to really go full steam ahead in our opinion. However, those who did and made it through, kudos, that’s what makes the world go round. You have to have that balance of lenders who are doing things / not doing things. Brokers aren’t going to stop.

Joseph: It would make logical sense for someone like that to take a step back because they’re not trying to make 20% on their money. This is a family that’s obviously done very well, they have the money, their goal is to not lose money.

Reid: Capital preservation.

Joseph: Yeah. It’s to do good deals, turn the money over. So to them, it’s like, “Well, we’re going to sit back and watch the world unfold. If it seems to be okay, we’ll come back in and if all hell breaks loose, well, we just watched a lot of other people lose money while we preserved ours.”

Reid: That’s why there are other avenues for the family office to make money as well. It’s not just about the lending, so there are other opportunities for us to stay focused on and earn money from that as well, too. It helped that way, absolutely, but it was tough as well too. There were some great deals. I kept a list of all the deals that I saw and I was like, “You know what, normally we’d be all over this but this one we’re going to pass on,” but I can also refer you to somebody or I can also try to help you with that and make sure it’s still a friendly conversation.

Lawrence: So you’ve surrounded yourself with successful people even as far back even in the home building area when you were working with home builders. A question I always like to ask is, what’s the best money-related piece of advice that you’ve received from one of these individuals?

Reid: I probably have a two-piece answer to this. I think there’s always someone smarter than you, has more money than you, more experienced than you, whatever it may be. So, I think you have to go into it with a mindset of, you’re not going to win every deal, you’re not going to be able to put out this much money on every transaction, you’re not going to hit home runs all the time. So, patience really, I think is what it falls down to. Be patient, no matter what segment of the industry you’re in. You’re going to go through a lot of muck, you’re going to have a lot of ups and downs and trials and tribulations. That’s one piece I think that I’ve learned over the years is just remaining patient in really all aspects of my life, both personal and professional.

I think the other piece though, too, is that… this is now going to be contradicting. Depending on who you speak to, and with our family office, we have a mindset here of, there is a risk that we need to take every once in a while and there’s opportunity to stick to our guidelines that we pointed out, and be steady and be conservative, but we have the opportunity to work on riskier deals. 

It might not be from the Breakwater fund, let’s call it, but because we’re a family office and there’s access to other funds, we can look at maybe lending through another one of our companies and funds really to be able to say, “Yeah, this is a risky opportunity, but why not have some fun with it?” Why not learn about it? Why not keep involving yourself further with these types of deals? Because the more we look at, the more you become more comfortable and at the end of the day, the risk may not be as risky as originally thought.

Lawrence: That’s the benefit of having multiple arms and different ventures within one office. You open up one door and you don’t know, it may touch other parts of your business and who you’re meeting. So yeah, I could see that as being an opportunity just to, not just shut everything down, but keep an open mind and maybe there’s something there. If there isn’t, that’s okay too, but at least explore the opportunity. 

How do people get in touch with you? They have a commercial deal, they have a res deal, maybe they’re not on Filogix, they just want to get a hold of someone and pitch a deal to you. What should they do?

Reid: The best way is really to go through our website, all our information’s there, everything you’ll need from legitimately our lending criteria to we’ve created a lending map that shows our preferred areas of where we want to lend, both primary and secondary. It’s not much gray area there, so you’ll be able to contact us, you’ll be able to learn from us really quickly from seeing what we do, seeing where we lend, and really a bit more about us, including our philanthropic avenues, what we like to do with the community. Just more about Breakwater, and who we are ourselves and the roots of us, the core of us. I think that’s a really good tool. It’s something we’ve taken a lot of pride in and recently revamped. So, number one goes straight there.

Number two, via my email and my cell phone, I’m always available. I try to be as active as possible and get a lot of answers out pretty quickly. That’s the consistency piece that I’ll touch on too, you’ll find that we are consistent, that we are getting back to you in the timeframes we say, always trying to help you out and make sure you have the right information.

Lawrence: Family offices are different from MIC’s, they’re different from syndicate lenders. It’s just a different animal and you’re not going to know about it until you give them a shot.

Reid: It’s been a pleasure. It’s been a long time coming to be able to discuss with you guys and have the talk because you guys are great. I really appreciate everything you’ve done as well for us and look forward to doing more together.