Market Commentary

Deal Profile: security-based facility for condo development

Deal snapshot:
First National delivers security-based facility, enabling a long-standing client to build two condo towers simultaneously, despite only 40 per cent advance sales in phase two.
Client objective:
Looking to tackle his first condo development after a successful 50-year career in industrial real estate, the client knew that it would be more efficient for future tenants moving in if both towers were built simultaneously (the two sites shared a parking facility on a structural podium).
The solution approach:
The First National team saw an opportunity to both support a long-standing client’s evolution and to set a precedent in the industry. It was a matter of evaluating the client request properly and figuring out how to use First National’s strengths – service, expertise and speed – to deliver.
Structuring the solution:
The client wanted to secure up to $18 million in financing to build phase two. The First National team tapped its network of investors, ultimately proposing a facility that took security over six industrial buildings and five condo units within the client’s portfolio. In the end, the client received the requested financing amount and avoided the consultant fees ($40 - $60,000) typically associated with construction loans. The deal closed in two months, despite its technical complexity.

Formula for success:
The trust and honesty that have characterized this client relationship for more than 50 years gave the client faith in First National’s approach to this deal. It took ingenuity to create a facility that provided ample funds, and First National was also able to execute quickly and make it convenient and easy for the client.
The key idea:
With the stakes very high – the profitability of the entire project rested in being able to build both towers simultaneously – First National created a deal that worked for the client and the investor. The client got the financing that he needed to fulfill his vision in a way that positioned both him and First National as trailblazers. 

by First National Financial LP 25. November 2015 11:46

Residential Market Update - Week of November 23, 2015

A new survey for Canadian Mortgage Professionals is out. Bond Brand Loyalty asked 2,000 Canadian homeowners about their mortgage experience.

Of interest to brokers:

  • 65% of customers who used a broker got more than one quote compared to just 47% of bank customers
  • 35% of customers say they used a broker to get multiple quotes, 65% say they used a broker to get the best interest rate
  • Significantly, about a third of respondents say they used a broker to explain the process or to do research

It's telling that 45% of broker customers say they are "very satisfied" with their experience, compared to 39% for banks.

What customers say about themselves:

  • Just 4% of borrowers say they "definitely regret" the size of their mortgage. A mere 3% say they are "very comfortable" with their loan-to-value ratio.
  • Approximately 20% say they will defer retirement due to mortgage debt

45% say they needed outside help to make their down payment, but about 7 in 10 say they could manage a down payment even if Ottawa pushed the equity rate to 10%



Les résultats d'un nouveau sondage pour Canadian Mortgage Professionals viennent d'être publiés. Bond Brand Loyalty a interrogé 2 000 propriétaires de maison canadiens sur leur expérience en matière de prêts hypothécaires.

Au sujet des courtiers :

  • 65 % des clients ayant fait affaire avec un courtier ont reçu plus d'une estimation, comparativement à 47 % des clients d'une institution bancaire.
  • 35 % des clients affirment avoir fait affaire avec un courtier pour obtenir plusieurs estimations, tandis que 65 % affirment l'avoir fait pour obtenir le meilleur taux d'intérêt.
  • Environ le tiers des répondants disent avoir fait appel à un courtier pour qu'il leur explique le processus ou pour faire des recherches.

45 % des clients ayant fait affaire avec un courtier sont très satisfaits de leur expérience, comparativement à 39 % des clients d'une institution bancaire.

Au sujet des clients :

  • Seulement 4 % des emprunteurs disent regrettent absolument le montant de leur prêt hypothécaire. Très peu de clients, soit 3 %, disent être très satisfaits de leur rapport prêt-valeur.
  • Environ 20 % des clients disent qu'ils retarderont leur départ à la retraite en raison de leur dette hypothécaire.

45 % disent avoir eu besoin d'aide extérieur pour effectuer leur versement initial, mais environ 70 % disent pouvoir effectuer un versement initial, et ce, même s'il faut désormais verser 10 % de la valeur de la propriété à l'achat.

by First National Financial LP 24. November 2015 10:03

100% financing puts long-standing client on the real estate map - case study

Client Objective: replicate retail model in industrial asset class
A long-standing First National client and real estate veteran was looking to extend its influence from retail to the industrial asset class. An excellent off-market opportunity arose to purchase eight properties for $56 million. However, the client needed to act quickly, but it lacked sufficient equity for the deal.

The First National Solution: 100% financing
Based on the strength of the existing client relationship and the quality of the portfolio, the First National team offered 100% financing for the portfolio, allowing the borrower to close within a month. As a result, the client gained the freedom to secure the property and raise equity post-closing in a timely manner, in a more favourable environment. 

The First National Approach: confidence and smart risk taking
A deep client relationship and the knowledge to recognize the value of the real estate contributed to the success of this deal. The First National team believed in the client vision and real estate experience, so was confident in taking a smart risk. Trusting its ability to deliver on that smart risk allowed the team to honour what it promised and stay true to its integrity.

by First National Financial LP 20. November 2015 10:20

Residential Market Update - Week of November 16, 2015

A couple of recent reports about vulnerability to a correction in Canada's real estate market have been making some waves.

A report by the Canadian Centre for Policy Alternatives suggests that young homeowners (those under 40) would be hit hardest if housing prices crashed by 20%. It says one in 10 – or more than 250,000 – Canadians would see their net worth wiped out.

The authors of the report picked a 20% plunge based on Bank of Canada estimates that the Canadian market is overvalued by between 10% and 30%. But, of course, those numbers are skewed by the exceptionally high prices in Canada's two biggest and most expensive markets, Vancouver and Toronto.

The "T-V Factor" appears to be backed up by a report from one of the big banks. It examined vulnerability by region, based on household debt-to-income levels, and found British Columbia and Ontario are at the top of the list.

In general though the bank report points out that the sharp rise in household debt-to-income levels has stabilized over the last four years and low interest rates have kept payments manageable. 



De récents rapports sur la vulnérabilité à une correction du marché immobilier canadien ont fait quelques vagues.

Un rapport du Centre canadien des politiques alternatives suggère que les jeunes propriétaires de maison (âgés de moins de 40 ans) seraient les plus durement touchés si le prix des résidences diminuait de 20 %. Il indique que la valeur nette d'un Canadien sur 10 – ou plus de 250 000 Canadiens – disparaîtrait.

Les auteurs du rapport ont sélectionné une baisse de 20 % en se fondant sur l'estimation de la Banque du Canada que le marché canadien est surévalué de 10 % à 30 %. Bien sûr, ces chiffres sont biaisés par les prix exceptionnellement élevés des deux marchés les plus gros et chers du Canada, Vancouver et Toronto.

Ces données semblent étayées par un rapport de l'une des grandes banques, qui a examiné la vulnérabilité par région en fonction des ratios d'endettement par rapport au revenu et a conclu que la Colombie-Britannique et l'Ontario se retrouvent en tête de liste.

De manière générale, le rapport de la banque souligne que la hausse importante des ratios d'endettement par rapport au revenu s'est stabilisée au cours des quatre dernières années et que les faibles taux d'intérêt ont permis de garder les paiements sous contrôle.

by First National Financial LP 17. November 2015 14:16

Residential Market Update - Week of November 9, 2015

Strong employment numbers in both Canada and the United States have market watchers focusing on interest rates again, especially in the U.S.

The Canadian figures, while impressive, are not as significant as the American numbers. Canada generated 44,000 new jobs in October but Statistics Canada says most were temporary positions created by the federal election.

In the U.S., strong job gains have bolstered the Fed's arguments for an interest rate increase in December. Unemployment is one of the key factors the central bank considers in its policy decisions. The jobless rate has dropped to 5%, which is deemed to be nearing full employment.

U.S. employment along with respectable wage growth and a turnaround in GDP appear to meet the Fed's requirements for "lift off". November's results will likely by the deciding factor.

An increase in the U.S. will not automatically translate into a Bank of Canada rate hike. Many feel the BoC will not increase rates until 2017. But given the tight linkage between Canadian and American bond yields there could well be implications for fixed rate mortgages here.



Dans la foulée des solides statistiques en matière d’emploi au Canada et aux États-Unis, les observateurs du marché portent de nouveau attention aux taux d’intérêt, particulièrement chez nos voisins du Sud.

Les chiffres canadiens, bien qu’impressionnants, ne sont pas aussi vigoureux que les résultats américains.  En octobre, 44 000 nouveaux emplois ont été créés au Canada, mais Statistique Canada a eu tôt fait de rappeler que la plupart découlaient des élections fédérales.

Aux États-Unis, les gains importants sur le marché de l’emploi ont consolidé les arguments de la Réserve fédérale américaine en faveur d’une hausse des taux d’intérêt en décembre.  Le chômage est l’un des principaux facteurs pris en compte par la banque centrale dans ses décisions de politique  et le taux de chômage dans ce pays a fléchi à 5 %, un résultat jugé quasi équivalent au plein emploi.

La situation de l’emploi aux États-Unis ainsi que la croissance respectable des salaires et le retournement du PIB dans ce pays constituent autant d’éléments pouvant justifier une augmentation des taux par la Fed.  Les résultats de novembre constitueront sans doute un facteur décisif à cet égard.

En cas de hausse des taux d’intérêt aux États-Unis, la Banque du Canada n’emboîtera pas nécessairement le pas à sa voisine.  En effet, de nombreux observateurs estiment que la Banque du Canada ne procédera à un relèvement de ses taux qu’en 2017. Cela dit, en raison des liens étroits entre le rendement des obligations canadiennes et américaines, il est possible que cette situation ait une incidence sur les prêts hypothécaires à taux fixe ici.

by First National Financial LP 10. November 2015 10:51

Residential Market Update - Week of November 2, 2015

The latest quarterly report from Canada Mortgage and Housing Corporation has some market watchers seeing red. But the agency points out its market assessment is an early warning signal and not a sign of a housing bubble that is about to burst.

The report indicates there are signs of over-valuation in 11 of Canada's 15 major markets. Toronto, Winnipeg, Saskatoon and Regina all come in as "code red" for strong indications of problematic conditions.

Among the factors CMHC monitors are price acceleration, job and income growth, and overbuilding. The agency says it wants to promote stability by advising buyers, lenders and builders when a market is out of sync with economic fundamentals.

Montreal showed a moderate risk of over-valuation due low growth in first time buyers, weak income growth and a glut of unsold condos.

Vancouver – by far Canada's priciest market – along with Calgary and Edmonton came in with low risk factors. Changes in those markets are in line with the local economies.



Certains observateurs du marché ont vu rouge en lisant le plus récent rapport trimestriel de la Société canadienne d'hypothèques et de logement, mais l'organisme souligne que son évaluation constitue un avertissement précoce et non l'annonce de l'éclatement imminent d'une bulle immobilière.

Ce rapport relève plusieurs signes de surévaluation dans 11 des 15 principaux marchés au Canada. Il alerte notamment le lecteur de la situation problématique qui sévit à Toronto, Winnipeg, Saskatoon et Regina.

Parmi les facteurs surveillés par la SCHL, notons l'accélération des prix, l'emploi et la croissance du revenu ainsi que la construction excessive. L'organisme déclare vouloir promouvoir la stabilité en avertissant les acheteurs, les prêteurs et les constructeurs chaque fois qu'un marché s'écarte des facteurs économiques fondamentaux.

À Montréal, le risque de surévaluation est modéré en raison de l'augmentation modeste du nombre d'acheteurs d'une première maison, d'une faible croissance du revenu et de la surabondance d'appartements en copropriété invendus.

Vancouver – le marché dont les prix sont de loin les plus élevés au Canada – ainsi que Calgary et Edmonton affichent des facteurs de risque peu élevé. L'évolution de ces marchés concorde avec la situation économique locale. 

by First National Financial LP 2. November 2015 15:13

Residential Market Commentary - Week of October 26, 2015

The household debt to income ratio has hit an all time high – 165%. Yet the Bank of Canada seems to have gone strangely quiet on the subject.

Former bank governor Mark Carey routinely warned of the potential dangers brought by the lure of low interest rates, especially in the housing market.

Recently, though, new governor Stephen Poloz told a banking audience in Washington that it is not the Bank of Canada's job to fix bad debt decisions made by consumers.

It is useful to note how the central bank views its own job. Poloz says lenders, and borrowers themselves, are the first line of defence against bad debt decisions. He says bank's job is to manage inflation and the main tool for doing that is interest rates.

The Bank of Canada cannot separate the low interest rates meant to inspire business borrowing from the low rates that are fuelling the real estate boom.

Poloz does say, though, that the Bank of Canada is keeping a very close watch on those household debt levels. 



À 165 %, l'endettement des ménages a atteint un nouveau sommet et pourtant, la Banque du Canada demeure étrangement silencieuse à ce sujet.

L'ancien gouverneur de la Banque Mark Carey souligne régulièrement les dangers potentiels de l'attrait qu'exercent les faibles taux d'intérêt, particulièrement sur le marché de l'immobilier.

En conférence récemment à Washington, son successeur Stephen Poloz a toutefois déclaré à l'auditoire qu'il n'incombait pas à la Banque du Canada de venir au secours des consommateurs malavisés en matière d'endettement.

Il est utile de prendre acte du point de vue de la banque centrale par rapport à son travail. Selon Poloz, ce sont les prêteurs et les emprunteurs eux-mêmes qui doivent avant tout se prémunir contre les erreurs en matière de crédit. Il estime que le travail de la banque consiste à gérer l'inflation et que les taux d'intérêt constituent le principal outil dont elle dispose à cette fin.

La Banque du Canada ne peut pas séparer les taux d'intérêt anémiques visant à stimuler les emprunts commerciaux des taux d'intérêt très bas qui alimentent le boom immobilier actuel.

Poloz déclare toutefois que la Banque du Canada surveille de très près les niveaux d'endettement des ménages. 

by First National Financial LP 27. October 2015 08:42

Navigating the new world of affordable housing

First National manages the administrative complexities to provide financing to a Social Housing Provider with one of the first Section 95 agreements to expire.

A provider with 270 units in Toronto had a Section 95 affordable housing agreement that expired on June 1. Free of Government obligations, the owner was anxious to pursue improvements to the building. Based on an engineering assessment, the owner was advised that the building would require $16 – 18 million worth of upgrades in the next four to five years including garage, boiler, elevators and roof.

As a result of the limitations of the Section 95 agreement, the owner lacked the necessary funds to do the upgrades. He turned to First National for help.

The First National team proposed a refinancing of the property to generate the needed funds, but there was significant administrative work required to manage the complicated nature of affordable housing.

When providers signed these agreements with the Federal Government, CMHC loaned the money. However, when the province assumed the agreements, the province provided an indemnity to CMHC in perpetuity -- to cover any potential losses on the existing loan as well as any future financing on the property.

With the expiration of the agreements introducing the alternative to refinance, it is necessary to complete a Section 9D waiver to cancel the indemnity. Without that waiver, CMHC is unable to do any more financing on the property and will not even consider an application. The waiver process includes three levels of government, and it’s a fairly new and complicated process to complete.

In this case, First National pioneered this new administrative frontier on behalf of its client, making sure that the 9D waiver was secured ahead of time. The First National team assumed responsibility for completing the CMHC application for the client so there would be no delay in receiving funds when the agreement expired.

In addition, the client required $18 million in financing to fund all of the outlined upgrades. Due to underwriting restrictions based on affordable housing rent levels, the application came up approximately $1 million short. However, the First National team proposed using the CMHC energy program to cover the $1 million differential.

In the end, the client received the financing within three weeks after the agreement’s expiration. 

Click here to download the case study.

Contact Daniel Bragagnolo to discuss how our team can assist you.

by First National Financial LP 26. October 2015 09:57

Residential Market Commentary - Week of October 19, 2015

The latest monthly stats on Canadian real estate are out and many market watchers were surprised to see sales dip in September.

Nationally, home sales slipped 2.1% last month compared to August. Year over year though sales continued to increase, edging up 0.7%. Prices also continued their upward march posting a 6.9% increase from September 2014.

The numbers, though, remain a tale of two cities. With Toronto and Vancouver taken out of the calculations prices rose 2.9%. Alberta and Saskatchewan continue to feel the pressure of falling oil prices. While prices were largely flat across the region, Calgary sales plunged 34%.

Overall, the Canadian Real Estate Association is calling the market balanced as reflected by Montreal, for example, where overall sales rose 5% and prices increased 6%.

The expectation is for more of the same in the coming months. The Bank of Canada is not expected to make any changes in its policy announcement this week. Affordability will continue to push buyers into less expensive areas outside Vancouver and Toronto. And uncertainty in the energy sector will start to weight on consumer confidence. 



Les plus récentes statistiques mensuelles concernant le marché immobilier canadien sont maintenant publiées et de nombreux observateurs ont été étonnés de constater le recul des ventes en septembre.

En effet, les ventes de maisons à l'échelle nationale affichent une baisse de 2,1 % pour ce mois par rapport au mois d'août. On note toutefois une hausse des ventes de 0,7 % sur douze mois. Les prix ont également continué de grimper pour afficher une augmentation de 6,9 % par rapport à septembre 2014.

Ces chiffres reflètent toutefois deux situations bien différentes. Si nous retirons des calculs les données de Toronto et de Vancouver, c'est une hausse des prix de 2,9 % que nous obtenons. L'Alberta et la Saskatchewan, par exemple, continuent de ressentir la pression de la chute des prix du pétrole. Bien que les prix soient plutôt stables dans la région, ceux de Calgary ont plongé de 34 %.

Dans l'ensemble, l'Association canadienne de l'immeuble estime que le marché est équilibré, comme l'indique la situation à Montréal, où les ventes ont augmenté de 5 % et les prix de 6 %.

L'on s'attend à un scénario semblable au cours des prochains mois. Cette semaine, par exemple, la Banque du Canada ne devrait pas annoncer de changements à sa politique. L'abordabilité continuera de pousser les acheteurs vers les zones à l'extérieur de Vancouver et de Toronto, où le prix des logements est plus bas, tandis que l'incertitude qui règne dans le secteur de l'énergie commencera à miner la confiance des consommateurs. 

by First National Financial LP 21. October 2015 09:21

Market Commentary - October 16, 2015


It’s been a couple of weeks since my last note, but no one seemed to notice,  so I’m wondering if tri-weekly might be a more appropriate frequency for this little stream of consciousness.

In the meantime, let’s take a quick look back at the last couple of weeks and see what we missed.

One of the more significant events was the poor US employment data on Friday October 2nd.  Non-Farm payrolls grew by only 142k relative to 200k expectations.  The prior month was also revised down by almost 40k jobs. One cryptic trader was quoted as saying “This was unequivocally bad”.  The resulting rally in bonds (poor jobs=weak economy=no inflation=dovish central bank=accommodative monetary policy=lower rates=higher bond prices) pushed 5yr yields down from 82bps to 70bps in the immediate aftermath as the bond market pushed back expectations for the first Federal Reserve interest-rate hike in almost a decade until March.  Bonds managed to pare gains as stocks recovered throughout the day though, and 5yr yields ended only 3bps lower than where they had opened.   For context, the 5yr yield averaged 0.79% in September and is trading around that level today.

Absolute yield levels weren’t the only thing moving after the payroll data.  Debt investors are a twitchy bunch these days, and any signs that global turmoil is weighing on the economic outlook is adding to their stress.  Measures of corporate credit spreads spiked after the US employment data was released.  The widely watched CDX investment grade index touched a one year high of +98.  For context, it averaged +83 during September and has since settled back to that level. 

CMB spreads were not immune to the volatility.  The current 5yr CMB bond had widened by as much as 10bps over the last couple of weeks, but has since fallen all the way back to pre-payroll spreads.

Over the course of the subsequent week, bonds continued to reverse the payroll effect as equities extended their longest rally of 2015 amid expectations that the Fed will take its time raising rates.  According to one BMO strategist “If you think the Fed’s going to be on hold for a long time, you have a higher potential for growth and potentially higher inflation”.  (Inflation=”Hawkish” central banks=less accommodative monetary policy=higher rates=lower bonds).  And you wonder why I get mad when people ask me if rates are going up or down.  Who knows…if you ask me, the relationship between inflation and interest rates is like one of those ‘circular reference’ errors I get when I use a spreadsheet.  I hate those.

Anyway, this has already gone on too long.  Let’s sum up with this…tone has definitely improved over the course of this week, and credit has been modestly better bid in secondary markets.  RBC has identified this as opportunity to launch their $378 million REAL-T 2015-2 CMBS transaction featuring AAA rated 6 and 10yr tranches.  I’ll keep you up to speed on how the deal goes.  5 and 10 year bond yields seem to have settled in for now at around 0.80% and 1.42%.  The next BoC rate setting meeting is October 21st, and the probability of a rate cut is around 5%.  The next Fed rate setting meeting is October 28th, and the probability of a rate increase is around 5%.

It’s a mixed up, muddled up, shook up world…

Have a great weekend, and Go Jays.

Treasury Guy

Jason Ellis

Managing Director, Capital Markets

by First National Financial LP 16. October 2015 10:50