Introduction to First Source Mortgage Fund

First Source is a boutique private lender currently managing a portfolio of nearly $169 million of small and mid-sized commercial and development mortgages in the Greater Toronto Area and Golden Horseshoe regions.  Founded in 2006, First Source has built an impeccable reputation as a dependable and astute mortgage lender, managing risk through conservative underwriting and diligent mortgage servicing. The First Source team consists of seven seasoned professionals with over 110+ years of cumulative mortgage underwriting in the GTA.

Since its founding, First Source has originated and managed mortgages totaling more than $477 million within its current strategy and geographic focus and generated net returns to investors in excess of 10% per annum with 148 consecutive months of solid distributions. Average annual loan loss has averaged less than 0.13% per annum across all mortgage investments.

Drawing on over ten years of strong performance in its syndication business, in April 2017, First Source has launched the First Source Mortgage LP (the “Fund”).  Fund assets are now approaching $30 million in commercial mortgage investments in its first five months and growing. With an investment strategy and process unchanged from the syndication model, the Fund offers a diversified portfolio of commercial and development property mortgages focused in the Greater Toronto Area and select other Southern Ontario markets. Fund objectives are to preserve unitholder equity and provide unitholders with stable and secure dividends. First Source Financial Management (the ‘Manager’) is licensed by the Financial Services Commission of Ontario.

First Source Founder and CEO, David Mandel attributes a large part of the firm’s success on its conservative underwriting practices, its growing and loyal following of investors, as well as the brain trust of its many professionals, seasoned real estate investors, and family offices that make up its investors. Regarding First Source investors, Mandel added, “We are so very fortunate to have such a large talent pool when it comes to our investors who will readily share their insight, expertise and knowledge. Our brain trust is made up of professionals who have made their fortune in real estate or are service providers to the industry or have proven themselves as savvy business people. We work closely with each of them and them with us. Together, we have built a successful mortgage investment company”.

Mandel sees significant benefits for the Fund due to recent changes to Canadian mortgage rules:

“These changes were designed to slow down the red hot residential housing markets of Vancouver and Toronto but do not apply to the commercial mortgage space. That, we anticipated government intervention in the residential marketplace and made an early decision to fund only first time and move up late stage residential development projects that favour higher density in addition to the various other types of commercial, retail, industrial and special purpose commercial mortgages we fund. This segment of the real estate market is more likely to withstand the impact of changes due to the affordability factor and that demand for lower cost housing far exceeds supply.

Local governments are seeking higher density projects for approval since the supply of developable land has not kept in pace with demand. These project loans are easy to understand as they carry a low to moderate risk unlike next stage construction loans where any number of factors such as changes in the labour market, or cost overruns could turn a seemingly good project into a nightmare. Typically, our already lower risk loan reduces risk further as the projects we fund approach next or final stages in the land development approval process. Demand for medium and low cost housing in the GTA and Golden Horseshoe outstrips supply due to immigration as well as employment driving impressive growth.”

In terms of Fund differentiation, Mandel added, “what really sets this fund apart from our competitors in the space is our alignment with investors,” stated Mandel. “Unlike other mortgage funds or MICs that pass on only interest to investors while keeping all origination and management fees, the First Source Fund shares ALL fees with investors. These origination and management fees can enhance investor returns substantially, representing as much as 200 basis points in annual return.  A unique, added benefit of this structure is that all income earned by the Fund is considered business income, attracting a lower tax rate than comparable income products for corporate investors.  For investors in the top tax bracket in Ontario, this tax treatment can drive a significantly higher after-tax yield with a benefit of over 200 basis points based on targeted net returns for the Fund.”

The First Source Mortgage Fund is available from Kensington Capital Advisors. Please contact us for more information.