First National Financial LP

A First National business update from Jeremy Wedgbury

  • Jeremy Wedgbury, Senior Vice President, Commercial Mortgages

Economic headwinds caused by inflation, interest rates and supply chain shortages continue to make for a uniquely challenging environment here in the first week of March 2023. 

In particular, this latest bond yield run up likely sets the market back for a longer period, may cause some borrowers to struggle to find capital, or lead to defaults. In short, we are in a risk-off environment with inadequate levels of liquidity. Against this backdrop, I think a business update is in order. 

A record year

First, some financial news. Last week, First National reported its 2022 results. In the context of a difficult final half of the year, we more than held our own thanks to widespread demand for our mortgage programs across different property asset types. With contributions made by all of our teams across Canada, we finished the year with our largest-ever commercial mortgage book: $42.4 billion, 9% higher than the prior year. 

Annual new originations of $9.6 billion came within 1% of equaling our all-time record. About 75% of our volumes were insured and the rest conventional, a ratio that is likely to change this year given current market dynamics.  In total, a productive year. 

Constructively positioned to assist clients in adding new supply

With over 50 CMHC insured rental construction loans from Halifax to Victoria totalling over $2.5 billion committed, and with the debt structured strategically to determine if affordability or energy efficiency can be used to qualify, First National is constructively helping our clients add new supply.  

From this experience nationally, we know how quickly our clients leased up their properties. This is testament to population growth, demographic shifts that draw more Canadians to rent versus own and the outstanding quality of our clients’ projects. We feel incredibly fortunate to work with the industry’s best developers and asset owners who have made First National Canada’s leading apartment property lender and the market’s first choice for construction financing.

Looking ahead with eyes wide open

We expect to originate over $9 billion of commercial mortgages in 2023, thereby reinforcing our position as an all-weather lender. Some of our great gains have in fact come at times like these. When others pull back, we move forward for clients. 

That said, we are under no illusions about the difficulties asset owners and developers face because of current economic headwinds. In this type of transitory market environment, price discovery becomes that much harder, and asset purchases/sales can stall. We are seeing some of that now. Bond yields are also not behaving rationally at this point. While the Bank of Canada’s current stance is to pause interest rate hikes – it’s impossible to forecast the next steps in monetary policy.

Our role at First National is to stay close to our clients so that we can provide the latest information on interest rates, availability of capital and various tools we have to find windows of opportunity to mitigate risk or pursue a new opportunity, such as our Early Rate Lock program or Quick Close Bridge program.

The time to consider insured program options

In my message to clients in January, I said that 2023 would be a CMHC year. Two months later, we are even more convinced that insured commercial mortgages will play an outsized role in this year’s market. Our forecasts suggest that First National’s ratio of insured mortgage volumes to conventional product will tick up beyond 75% to perhaps 80% this year.  We are seeing the markers of this shift already taking place in January and February as we investigate, initiate and originate business using MLI Select, the CMHC Standard Rental program and Rental Construction Financing Initiative. In a higher interest rate, risk-off environment, insured mortgages provide incentives and advantages that are capturing the attention of many clients. 

New appointments

It’s in our nature to always strive for better for our clients. One of the ways we do that is to invest in our talented workforce and add it to it as we are this year. In fact, I am very pleased to announce that two deeply experienced business leaders are joining First National.

Effective immediately, John Lucas becomes Regional Vice President, Western Canada with responsibility for supporting our growing base of business in Alberta and B.C. John will introduce himself under separate cover. But for the record, he is a CPA with almost 20 years of commercial financing and asset management expertise, most recently earned in a leadership role with an innovative Vancouver-based developer and prior to that at Coast Capital Savings and RBC. John is based in Vancouver.

John will complement the efforts of our very strong local origination teams in the Lower Mainland/Vancouver Island (Russ Syme and Paul Steckler, Marc Nixon, Jesse Selles, Kyle Pawliuk and Zach Vanier) and in Alberta (Troy Barker, Damir Jesic, and Mark Jewells). John will also work closely with Evan Pawliuk, Reed Bracken, Adam Powadiuk, and Jimmy Castonguay, who are headquartered in Toronto but have considerable ties in the West.

I’m also pleased that Scott Mizzen will join First National in May to serve as Regional Vice President, Ontario. Scott has served VersaBank for over 20 years, where he developed expertise in all the areas that are relevant to First National’s clients including construction, bridge and long-term financing. We will provide a more formal introduction to Scott upon his arrival. 

In my 19 years at First National, we have never had greater bench strength. The presence of high-quality, well established First National leaders including Michael Williams, Regional Vice President, Quebec and Atlantic Canada, Aaron Cameron, Assistant Vice President, Commercial Origination, Veronique Clermont, Senior Manager, Commercial Funding and Lena Teixeira, Senior Manager, Commercial Servicing makes a world of difference to our capabilities.

Outreach for you

Over the past two months, I have participated in deep-dive conversations with over 20 First National clients. These special meetings and others like it hosted by members of my team gave us a chance to speak in depth about risks, opportunities and solutions.  Consultations like this are always important but even more so now given market volatility and economic headwinds. For that reason, I strongly urge you to speak to your First National advisor to arrange this type of meeting now. 

In addition to these conversations, we also actively share our thoughts on the market, the composition of current CMHC programs as well as CMB capacity with Canada’s national housing agency. We believe our advocacy on your behalf is important. Given that we fund one out of every four CMHC multi-unit residential mortgages in Canada, we come at these conversations from a unique position of knowledge and experience.  

Optimism for the long haul

We feel cautiously optimistic that more constructive market conditions will emerge in the second half of 2023, assuming current interest rate expectations do not change.

Beyond that, our optimism grows as the long-term fundamentals driving demand for housing are favourable and as First National benefits from the presence of so many talented and empowered people and clients across Canada.

My sincere thanks to you for giving First National the chance to be of service. We hope to do more for you again this year, our 35th as a business.