Properties with stable cash flow and consistent operating histories are favourable candidates for standard financing. For retirement assets, this can mean properties with consistent occupancy and a history of stabilized operations. The borrower’s experience as an operator is also a critical loan consideration. If there is an ownership group, management guarantees and competencies are required.
Standard financing offers a term of five years or more, a fixed interest rate and is typically closed to prepayment for the term’s duration. For seniors properties, the two most common types of standard financing are Canada Mortgage Housing Corporation insured (CMHC) and conventional.
CMHC-insured financing offers lower interest rates, terms of 5 years or more and higher loan to value ratios, making it a popular choice for most borrowers. There are also programs available to borrowers (i.e. the Energy Efficiency Program) that can help them increase their loan amounts, access premium credits and lower their monthly expenses.
First National is Canada’s largest CMHC-insured lender.
Standard financing is usually considered when borrowers want the payment predictability that comes with a fixed interest rate. However, it is important to note that a typical conventional financing term for a retirement asset is five years. Longer terms are available, but there is often greater scrutiny on future cash flows. Borrowers must be able to show that longer-term leases (i.e. maturing in 10 years or more) are in place for the duration of the mortgage term.
Commercial Mortgage Backed Securities (CMBS): CMBS is a conventional financing solution available for first mortgages on established, stabilized properties (generally three or more years of stable operating history). This type of financing works well for properties with in-place, stabilized net cash flow.