Real Talk with CHIA #5
Real Talk with CHIA #5: In this episode, Jianping ZHOU, Director, Commercial, Industrial and Real Estate Sectors, Asian Market, Desjardins Business, talks to us about the commercial real estate needs of Asian clients across Quebec as well as how Desjardins qualifies its borrowers and their real estate projects: acquisitions of industrial land, warehouses or multi-residential rental buildings.
This episode aired on December 8, 2021 and is rebroadcasting on YouTube, here is its translated transcription:
Hello ! I’m CHIA, your HappyBroker and also the host of “Straight Talk with CHIA”. Today, I am pleased to introduce Jianping ZHOU from Desjardins. Hello Jianping! Hello CHIA! Thank you very much for accepting my invitation. And thank you very much for the invitation. Yes, I’m really pleased that you’re coming here today to talk about your passion and I’m very curious to know your story because it’s rare that an Asian speaks French. So what brought you from China to France and now to Canada? Indeed, when I was in China and then when I finished my degree…Okay…it was my wife who chose France, then I am my wife, it’s just like that. Okay. So you must be a happy man because all happy men listen to their wives. Absolutely. Okay, perfect. Then after that, why did you choose Quebec? Well, actually, when I was in France…Yes…you know it’s a bit difficult to stay even if you had a job, you had a job. Then I have a friend by chance when I’m at work…Right…then they said: OK, let’s go to Quebec…Yes …because in Quebec, in fact we have immigration right away. OK. Then we speak French, there is also the culture. That’s why I’m here. That’s why I chose to do immigration in Quebec. Oh, right. Yes. Is this the program for… how do you say it? Skilled workers? Yes. Yes, I too immigrated to Quebec with the same program. We all have talent. Yeah, great! So I also, actually I think there are a lot of people who don’t know, but they suspect. I really, I’m convinced that I’m looking at a mathematical genius.
When I read your LinkedIn profile, I’m convinced that you are very, very young, you have a talent for everything that is numbers, right? Well, it’s far from being a genius actually first of all, but I have a lot of interest in numbers…OK…and then also calculations like that. That’s first when I’m studying finance. Yes. Then even in the beginning when I was choosing as financial, well finance as financial engineering, … Yes…I didn’t know it was like otherwise, you can call it applied mathematics. Right. So, but I’m following the path, I have no choice, I have to take the classes for the numbers. It’s that way, yeah. Ah, okay. But it’s far from a genius. But how does it work in your brain? You know, is it like numbers, they just place themselves? Is it like, let’s say, when you’re younger, when you’re in elementary school, high school? Do the questions, the formulas of calculation arrive in your head, and then you have the answer immediately? That I would say, that’s like an accumulation of experiences for practices… Yeah… because if by chance when I was in 3rd grade, then there’s a day when I like some reading, then I found a book at home, then in the closet upstairs… Okay. …then full of dust… OK. So, it was… it’s called: “The Tale by Grandpa Soupoutine” OK. You know, Soupoutine is a person like a Chinese mathematician. Yes, yes. He’s very famous. Yes. So I was looking at the book, there wasn’t even a cover page. OKAY. So I was looking at the first tale, … Yes…it’s interesting, it’s like an old man bringing three passengers to cross a bridge at a plank. OK. So there’s water…Yes…a goat…Yes…and a cabbage. OK. So you can’t leave the wolf with the goat alone. Yes, OK. You can’t leave the goat with the cabbage alone either. YES, OK.
So, but you can only bring one or two passengers to cross the bridge. OK, how can you cross safely, without just losing an object? OK. Now it’s easier for us, …Yes…but at the time, I think I took a lot of time, and then ah there, I found it very interesting. So it’s thought-provoking…That’s it…strategic.Yes, afterwards, …Yes…then, he even sent me like to an after-school class, …OK…the Math Olympics. OK, yes. Then I had a bubble of going for example at the time, …Great! …then, but in college, …Yeah…I actually chose more of a literature track, …OK…instead of science.OK. So well, from college until 2012 when I went back to financial engineering, it’s still been 12 or 13 years that I never actually do math there. OK. But in life, you always make the reflex to think the numbers, all that, … OK…a little bit simpler, right. OK, great! So that, that’s been an ease for you, a passion for you, so around the numbers, that creates also I guess, interest. In fact, it’s a foundation for your career choice. When did you plan to become a banker? OK, that actually right now, I was doing like real estate financing, commercial. Yes. So, it wasn’t an opportunity actually that I’m applying for financing for my house. Ah okay. So this is in 2011, in fact when I just arrived in Montreal, I wanted to buy my first house. Right, okay. Me and my wife, we went into a bank next door to us, RBC I think. And then, the reception, what is our goal? Then he brings it an account manager who came out. OK. When I see him actually, a nice jacket, nice shirt, the tie. He actually brings us into his nice sunny office, he shows a nice business card, oh I say impressive. I don’t even remember what the content was that we talked about. OKAY. I look at the posture and then finally, we didn’t read the mortgage, but that’s okay, it’s worth it. Then I say: OK, this is my career dream, and I’m going to become a banker. Oh yeah, okay. Okay, that’s good. Then I took my course as financial management, after financial engineering; there, I got my job in fact at the bank, it was cool. Then I got my tie, I got my full shirt. Now, you become that person who welcomed you…Yeah, that’s right…when you first came in, oh right. Oh, see…That, that’s fate….I think it was the glare of the sun that created that effect, good fantastic.
So, how long have you been the Asian market manager for commercial and real estate financing at Desjardins? At Desjardins, I think it’s been almost 3 or 4 years. 3 or 4 years, OK. Just that, 2018, the beginning of 2018. OK, great! Then at the beginning, I came back. Yes. I work with my colleague for the Asian market, that’s also my goal to move my career from one bank to the other financial institution…Very good….that was at CIBC, then I’m an analyst as a real estate trader, so residential too. Okay, yes. Then my dream is to always actually serve the Chinese or Asian community more like that. Great! OKAY. So Desjardins chose me, then I chose Desjardins. Do you actually cover the Asian market in Montreal or all of Quebec? Actually, we have the territory across Canada normally, I could serve the customer anywhere in Canada, but mainly because of the warranty, some increases, we work more like in Quebec. OK, I see, I see, OK. In the province of Quebec. Sometimes, we do deos like in Toronto for example, in Vancouver, we can do it too.
So since you took on this new challenge at Desjardins, have you seen an increase in Asian clients seeking commercial financing? Yes, I have. Oh yes, OK. Especially since the last two or three years, we had clients like Asians, except that they need to have human resources or people who can serve them, as they say. That’s why when we have equipped ourselves as an Asian team, we are no longer able to serve others. Yes, of course. Because communication is important. Yes, absolutely. People often say, for example, that there has been no increase in legal effects in real estate and commercial transactions. Yes. So, if for example the clients, they are not sure and if they understand like the transaction or things, they hesitate. That’s why in fact, we don’t have the facility that is there; but now we are more and more equipped. OK. Yeah. I see, that’s good, that’s good, so there’s a lot of… so that means in your day-to-day time, there’s, in addition to serving customers, there’s also leadership and how you do team structuring so that it’s more and more effective. Yes. Is that it? Yes, that’s it. Okay, great! Because even the bank, I say like Desjardins too, there’s a superior support too. So he saw a lot of potential for the Asian market…Yes, absolutely…and we have qualified investors, we have people who are like financially very strong. Yes. So it’s just like how do you operate, how do you set the stage to serve the customer. That’s it, yeah. Yeah, then we, now it’s like instead of operating like individually, then it will be better to operate with a team. Yeah, okay. So we have like people who work for the financing, we have people who work for the operations, also for administrative, increase. All right. So it’s like a full service. Yes. Yes. Absolutely, absolutely. I’m very… I’m intrigued by a story actually, I have an old friend who’s very well known internationally, he sent me a really fascinating article earlier this week: a young Chinese guy in his early twenties, he comes to Vancouver with $30 million and then he wanted to invest in real estate right away.
I would like to know, for example, does Desjardins, so in your team, do you facilitate the accompaniment? Do you help newcomers who don’t yet have a banking history to invest in commercial real estate? Can that happen or is it really, you need someone, you know like you remember your own history, you had to come in and quietly build your history. So, for someone who is brand new, can they like skip several steps right away, right? I’m not going to say “no”…okay…because we did. Oh, right. Except that, well, it’s actually more like how you qualify the borrower. Yes. So first of all, we need the borrower to be experienced… Yes…who have experience in the field. But of course, the experience depends on what kind of project they’re going to invest in. Yes. Then we need to know if he is financially sound. Yes.
Thirdly, we need to know, does it have a history with us? Yes. Is there a connection with us? Yes. So for newcomers, for example… Yes…so for the third one, the history, normally, no; connection, no. But for the second one for example, it’s something very clear: if he admits funds to us, we need to know two things: is the fund like the barometer, but real estate or is it the liquid fund I was telling you? OK, right. So that’s going to like give us an idea, OK if something ever happens to the project, is the borrower able to manage itself for cash flow, for debt repayment? That’s the second effect, but for the first one we talk about experience. Often, they have more or less people who are financially strong, they have more or less experience in China or as abroad, for example: in commercial or residential real estate. For residential projects, it was relatively easy compared to commercial, because there are a lot of elements in there where you’re like equipped, you know very well. Yeah.
So maybe we look less at that effect. Okay. If it’s like financially solid, liquid, then we can look at what’s the level of risk we can manage? We can go there, but maybe as we add the value for example, so a little bit less. Okay. It’s like that actually, we manage. I see. I wouldn’t say no, but more like we conservatism, more analysis in there. Right. Yes. So it’s a matter of assessing the risks that Desjardins is going to take. That’s what it’s all about. OKAY. Now, we’re going to talk about either the borrower’s qualifications or we can be a little more specific. Yes, absolutely, in fact, among the clients that you currently serve, have you observed a change in the types of buildings that Asians are buying? In the last three to four years, have you seen a shift or a transition I would say? Like for example, from maybe a smaller plex to a 100+ unit building? Have you seen that shift? I would say yes, a little bit…OK…because well of course also, you know mentally my experience, because at the beginning, I serve as a group of clients, and then afterwards, I also evaluate. OKAY. But the clients in the last two years for example, we have the Covid, the residential buildings, the multiplexes, even the houses, the drainhouses and also the buildings like industrial are more in demand because…Yes, I know a little something. Yes. I get the [laughs] yeah. I’m mostly actually all the time, the client comes back to me, it’s like: okay, Joe sorry, then I lost the beat of the beat. Yeah. Like actually, I lost the bid, there’s somebody else who submitted like a higher order. Yeah. Then also like sometimes in cash transactions, you know that happens. Yeah. But more like, it’s like industrial and residential. Yes. So it’s both kinds of property. Okay, I see. Yeah, still generally I would say. Okay, okay, great!
Because in fact, I think that when we talk about the industrial, obviously, there is the acquisition of the land, but sometimes the land also comes with a warehouse and that is really the type of product that is very, very sought after right now. Yes, indeed. Since there are a lot of Asians, I think that in fact, you correct me if I’m wrong, at least from my own experience, is that my Asian customers are the contractors, and then there are a lot of them who are importing. So that’s why it’s important to find a warehouse that’s going to be big enough to support their operations, isn’t it, the goods are coming from Asia or wherever to here, and then they have to store it close to the distribution center. Yes, you’re absolutely right; in fact, there are customers who do a lot of importing and exporting and need warehouses. On the other hand, not only the importers or exporters, there are also the people who do the manufacturing. Yes, there are also like the data sector, like the new industries that are hotter, I tell you. Yes. And also, for example, like people who do recycling, things related to the environment. Yeah, that’s it. So they have a lot of needs for that kind of like warehouses. Yes, absolutely. There are also agribusinesses like supermarkets for example, they need to have facilities for their evolution for example, yes to ask. Yes. But on the other hand, to specify: it is that in the type of industrial, let’s say we speak about warehouses, …Yes…the warehouses like old ages, like old motels that have a clearance height like lower for example or like with obsolete facilities, with older buildings. Yeah, that’s it. It’s not the things that we’re looking for…No…it’s more like a new standard, let’s say with like higher clearance heights. I’m actually even seeing 100 foot clearances. Yeah. See, that’s huge. Oh, wow! Yeah, because with the evolution of technology, the heights…That’s right…so it’s possible to have more efficient use of space.
Yes, absolutely. Yes, and that’s what we have to be careful about too. Yes, I understand completely because I live it every day. Yesterday, I visited 32,000 square feet of warehouse and the salesman said: well, how much do I want for my building? I said: honestly, it’s not that easy to sell because the ceiling is not high enough. OK. All the buyers, they’re looking for at least 18 feet, 24 feet or 100 feet like what you just said. That’s right, yeah. So, the ceilings, you know the buildings that are a little bit more dated and not high enough, it would be a challenge to apply for the permits or demolition, rebuild, you have to redevelop. That’s it, that’s all the elements in there to consider the value. And then when someone says: well, there is nothing for sale on the market, we still have to buy the land that is already zoned industrial and then perhaps invest in demolition for redevelopment. But at that point, that’s where you guys make the difference: is it a viable project? You know because the acquisition, the cost of acquiring the land is already quite high, then after that, you also have to consider the construction, wow! Yes, it’s a lot of things in fact, you have to consider as crossed in fact, yeah.
So, my next question, this brings me to my next question of knowing so, as soon as a customer comes to you: you know Jianping, I need to know precisely if this project is financeable, from this first contact, this first information, until when he, he manages to create a new warehouse, we are talking about a process of how long? Are you talking about looking for an existing building or are you talking about a new construction? That’s right, if there’s already an existing warehouse, but he’s going to buy the building in the lot, the building, both, and then he goes through. So that means Desjardins finances, puts together different financial products to help him get through first the acquisition of the land, and then the construction price. OK.
If we’re talking about construction afterwards, well, there are regular procedures, we would say to evaluate the quality of the borrower. What is the quality of the project? Yes. We have our evaluation in there; in there in fact, there are many processes in fact that are variable, for example: is the land, are there any contaminations in there? Environmental problems? Is the building itself, physically, there’s things that happen for example, like limestone, like structure, a little bit of danger. Yeah. The interior design, does it follow for the client’s need? That, we have to look at that and that, that’s the part that the client should actually fix up front. So, but we at the financing application level, …Yeah…normally, we would say in 2-3 months…OK…in that circumstance. OK, I see. And then on these new builds, it can take longer too, it really depends on the customer’s timeline. Yeah. Is he going to start building later? Yeah. Or he’s going to build rather than now. But for us, we know like need plans, we need the projects to evaluate what is the cost to build or to buy? Yeah. And what is the potential value of that building? Absolutely. And what’s the client’s performance? Yeah. Now, we’re going to look at how we do the financing.
Yeah. Are you currently, like in the residential finance industry, experiencing the same challenge of lack of appraisers for commercial properties? Yes, I would often tell the client that actually to see the TV, it’s not because of us. Yes. It’s because the reports aren’t ready, so we have to wait for that too. Yeah, so, reviewers, we’re waiting for you, we need you, great! After that, I’d like to know how you see the overall picture, because we know that interest rates have probably already started to rise and that this will really be visible, supposedly around April, next year, 2022. What impact do you think this will have on your work and on your clients’ acquisition projects? Well, real estate financing, it’s more about leverage for clients. Yes. So, the client, the leverage, you’re going to impact the yield as well. Yes. When the interest rate that goes up, then already their yield, it’s going to be reduced because the cost is higher. Yes, indeed.
Secondly, for the bank, when the interest rate goes up, I say like generally, then we’re also going to tighten our test as a pressure test, says it’s normalization. Yes. We will also increase the test rate, at that time, for sure, with even an amount of income and then, we will lower the loan amount. Okay, yes. That means that the client will have to make a larger down payment. Yes, absolutely. So, the principal is higher, the interest rate is higher, so in the targeted yield, let’s say if they have like an internal yield as estimated 8 to 10 percent; well, now, it might be 7, 6 percent. Indeed. So that’s going to lower their investment return. Yes. So, when they start a project, they’re going to take that into consideration as well. Yes, so it’s going to make the investors basically more thoughtful. That’s right, they’ll think more. Yes, and we, the bank, are going to sit down more seriously because the interest cost for us is also increasing. Yes, absolutely. So, in this context, how will Desjardins differentiate itself from the others? What are the key strengths? I would say that every financial institution, in fact even I work in several institutions… Yes, yes.
It’s not as permanent advantages and disadvantages, each in its own way. Sometimes you have some advantages in this product or that service, sometimes you don’t. So I would say that each institution has its own advantages. So I would say rather as each institution has its characteristic or has its like… I was saying for example for Desjardins, it’s a company in fact where we know it has grown locally in Quebec for 120 years. Yes. So, it has more coverage of services throughout Quebec and then also well established in Ontario. Yes. So, like last time when I’m traveling with my friends, then in Gaspésie, I see like a Caisse Desjardins there, I took a picture. OK. I say OK, I’m present. Then I found in every town, a little village when I go through, my friend said: ”Joe, there’s another Caisse, take a picture”; well, I say: ”OK.” Then afterwards, I found oh every village, we have the Caisse Desjardins; that’s our advantage, I could say. THAT’S OUR ADVANTAGE, I COULD SAY. OK. Then, thanks to the structure of Desjardins, it’s more flexible…Yes, OK…because we don’t have like for example, there’s a ”red of face”, then afterwards everyone should follow red from the top. Yeah, okay. We, it’s the final decision, it’s going to be taken from the boxes…
Yes…because everyone, they have crates like boards, they’re going to make the decision at the financial level. OK. Then, we have rules, we have practices, we also have services in auxiliary which is provided by the red of face. I see. It’s to help us, that is to say to support us. So a more horizontal management. And then from that, the decisions are made locally. Yes, faster…Yeah…and more flexible as well, that I think, yeah. Very good, very good and thank you very much for clarifying all these points today. Thank you CHIA for giving me a chance to talk about this, yeah. It was my pleasure, so see you very soon. Thank you, see you very soon. Thank you!