Alert Bay

Underwriting Alert Bay: Why Remote Island Deals Need Realistic Leverage

Alert Bay isn’t some commuter suburb of Campbell River or Port Hardy. It isn’t even on Vancouver Island proper. It sits on Cormorant Island, off the northeast coast, and the only way to get there is a 45-minute ferry ride from Port McNeill. If you are a mortgage broker looking at a file in this market, that geographic isolation is the very first thing you need to factor into your equation. This is a quiet, self-contained coastal community of just 449 people where life revolves entirely around the waterfront. It is the historic home of the ‘Namgis First Nation and Kwakwa̱ka̱’wakw culture, and while you will find the world’s tallest totem pole here, you won’t find master-planned resort developments or modern subdivisions.

Look at the local economy and you quickly realize this is a slow-growth market. The population growth has been flat at 0.0% since 2016. The median age is 52, and seniors make up a full 33% of the residents. This is not a resource-rich boomtown with high-paying private sector jobs. Instead, the local economy relies heavily on public administration, health care, and social assistance, which combined make up nearly 40% of employment. Commercial fishing and tourism-related services pick up some of the slack, but the local unemployment rate sits high at 14.3%, and household incomes are exceptionally tight. On the flip side, there is practically no gridlock. Because the entire island is a tiny 1.69 square kilometers, almost everyone has a commute under 15 minutes, with the average drive taking just 7.5 minutes.

When it comes to real estate, inventory is incredibly shallow. There are only 266 total private dwellings on the entire island, and over 77% of those are older, single-detached homes. Since land is physically limited by the ocean, new construction is rare. Buyers in this market are almost exclusively local families, retirees looking for a slow-paced lifestyle, or individuals with deep cultural connections to the area. There is no speculative flipping happening here, and it is certainly not a weekend getaway spot for Vancouver buyers.

When a deal comes across our desk at Tekamar, we have to look at it through the lens of capital preservation. Alert Bay has a lot of character, but the buyer pool for a home purchase is exceptionally small. If a borrower defaults and we have to step in, finding a qualified buyer on a remote island is a long, drawn-out process. Property taxes, winter heating, maintenance, and interest costs quickly add up during a year-long listing, which directly threatens our investors’ capital.

We do lend on Cormorant Island, but we manage our risk by keeping our exposure conservative. Because of the long recovery timelines and thin transaction volume, our maximum loan-to-value for properties in Alert Bay is capped at 45.0%.

If you have a client on the island who has deep equity in a clean, marketable single-detached home and needs a short-term bridge or debt consolidation, we can absolutely look at it. Just make sure to manage their expectations on leverage from the very first phone call.