Q & A: Fundamentals of Real Estate Development & Finance
with Instructor Aaron Forbes, CFA
This blog series introduces Real Estate Development Professional instructors and shares their answers to a few questions about the development process. Read below about Aaron’s perspective as a lender and what he recommends newer developers keep in mind throughout the process.
Aaron Forbes, CFA, has taught fundamentals of real estate development and finance courses with REDI Canada since 2020. Aaron holds degrees in economics and finance from the University of Calgary. He is a licensed member of the Real Estate Council of Alberta and has completed the Mortgage Associates Program. Aaron joined MCAP’s Development Finance Group in Calgary in 2006 and is now in the role of Senior Director where he oversees origination, negotiation, and underwriting of construction loan facilities for various projects. With over $5 billion in real estate transactions across Western Canada, Aaron has facilitated financing arrangements with major Canadian Banks, Alberta-based lending institutions, pension funds, life insurance companies, and private lenders.
REDI: What turns a “good idea” into a financeable development?
I think addressing the demand question is where the rubber hits the road and gets most development projects off the ground. As lenders, we want to understand how the construction loan will ultimately be repaid, and the more certain we are of that, the more likely a project is to receive financing. The remaining risks in most development projects – construction, budget, financial, interest rate, legal risk, etc. – can all generally be addressed or mitigated by internal actions taken by the Borrower but market risk is only addressed by a third party or parties confirming that your idea is in fact a good one!
REDI: What do lenders wish emerging developers understood about partnerships and communication?
This is a great question and one I could write hours on…the main thing I’ve noticed with respect to partnership agreements is that they have to be aligned with the interests of the project and not create inherent conflict between the partners. If I could offer advice, it would be to keep the agreement simple and to make sure everything in the partnership agreement is focused on getting the project built because a half-built project is very hard to value or sell if there’s a problem. I would also say the same is true of lending agreements, frankly.
With respect to communication, I would simply say that more communication is often better than less and that involving your lender earlier if there is a problem is always the best course of action. We don’t always need an immediate answer on how to resolve the issue, but a heads-up is always appreciated with a timeline for providing a more fulsome update/solution.
REDI: What separates a persuasive project story from a forgettable one?
For me, a persuasive story usually means the teller is passionate about the project but has soberly assessed and understands its shortcomings; those are the ‘pitch meetings’ where I can usually tell right away if the project is going to be a fit for us or not.
REDI: How should new professionals build a career in real estate development finance?
I think there are many backgrounds that can work to make a great real estate development finance professional, and the one thing I have found to be true is that seeing or being part of a high volume of projects will expose you to a lot of the successes and pitfalls of development projects. While the traditional route is usually a finance or economics graduate, working for a higher-volume developer, a general contracting firm, an appraiser, a brokerage, or a quantity surveyor are all great avenues to see a lot of projects in a very short timeframe and will help you build a solid base to understand construction, market, and other risks.
Aaron instructs REDP 210: The Fundamentals of Real Estate Development & Finance. This 5-week, self-paced course runs every Fall, Winter, and Spring.