First National sets a trend in financing in the locality by securing CMHC insurance for air space parcel
Key idea: CMHC expertise, persistence, negotiation, trail blazing
First National saw an opportunity to get ahead of a new financing trend, leveraging its CMHC expertise and network to prove the legal viability of air space parcels and secure CMHC insurance on the financing.
What was the client trying to achieve?
The client was finishing a mixed-use development in Vancouver, taking advantage of a growing development trend in the city. City officials are incenting developers with greater density if they build rentals within their developments, targeting mixed use as a strategic approach to sustainability.
In this particular building, there were three air space parcels (sections embedded within the two buildings where ownership is broken up vertically). The plan was to sell condos on one air space parcel, another was for retail and the final one was rentals. The client wanted to retain the rental air space parcel and secure CMHC insurance for financing.
It was a challenging deal because of the novelty of the concept, the complexities and the legal implications of the ownership structure. The key was finding the best way to sell it to CMHC to secure the insurance.
Putting the deal together
When the First National team approached CMHC with this deal initially, she received a flat out no in response. Because it was such uncharted territory, the team knew it had to be persistent.
There were other originators at First National that had done similar types of deals, so there was a precedent. However, because this is a growing development trend in Vancouver, it was a unique opportunity to blaze a new trail with CMHC and create a niche for First National.
In trying to figure out the best way to get CMHC on board, the team explored land titles and figured out the legal definition of air space parcels. The next step was to leverage a third party expert to validate the concept. That expert confirmed that air parcels are indeed a valid, legal real estate entity.
With that third party validation, as well as examples of other, more well known developers incorporating air space parcels into their developments, the team finally secured the CMHC title insurance and provided $10 million in financing. The whole process took four months.
Why First National?
Persistence is everything, but it has to be the right kind of persistence. In a case like this one, many other lenders may have taken a more forceful approach in their negotiations with CMHC. But with such deep knowledge of how CMHC operates, the First National team instead focused on arming its CMHC contacts with the tools they needed to present a logical argument to the board.
First National has a deep relationship with CMHC and can easily access information on its national initiatives. It was important to understand the CMHC mindset to figure out what information the team’s contacts needed to sell the deal through.
This client definitely benefitted from First National’s unique ability to deal with CMHC. As a result of the relationship and the history of setting new precedents collaboratively, CMHC officials respect First National’s expertise and are more apt to listen to new ideas.
In this case specifically, the team’s contacts at CMHC appreciated the persistence because it created an opportunity for CMHC to set its own precedent for a growing development and financing trend.