ADVISOR.CA – Simon Doyle and Katie Keir

Larry Jacobson, a fee-only advisor with Macdonald, Shymko & Company in Vancouver, receives many pitches to sell syndicated mortgage deals to his clients.

These lucrative, private debt agreements for real estate projects often promise attractive annual returns of 8% or higher. Most, Jacobson says, come with risky backing or excessive commissions, and he throws them in the bin.

It’s the solid-looking offers he takes seriously, scrutinizing their details, the project’s prospects and the quality of the underwriting. He visits the land for a literal sniff test.

“I drive to the site. I drive the area. I look at competing properties. I look at the cars and apartment buildings across the street. I get down on my hands and knees and smell the dirt,” says Jacobson, who’s been with MS&C since the mid-’70s. “We really do a thorough job of inspection.”

This may be what’s needed to properly scrutinize syndicated mortgage offers amid surging property valuations and housing sector risks in Toronto and Vancouver.  While real estate booms mean more investment, more construction, big commissions and nice returns, they can also mean sky-high valuations and riskier deals.

While syndicated mortgage offers can be great investments, experienced advisors are warning their colleagues to not be tempted by nice-looking commissions or pushy investors who want into real estate. “We find that most of the syndicated mortgages around today are garbage,” Jacobson says. “The underwriting process is really critical in these deals.”

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