Colliers International, the Canada-based global commercial real estate services organization, hosted a virtual webinar on April 24, 2020 entitled “Multifamily: A Stable Asset in Unstable Times” that brought together market experts from the development, asset management, and lending industries to discuss the state of the country’s rental apartment market and financing availability. First National’s Jeremy Wedgbury – Senior Vice President, Commercial Mortgages was one of the panelists. Here are some of Jeremy’s key takeaways.
1. First National finances multifamily properties on an insured and conventional basis from coast to coast as the country’s largest apartment lender with a portfolio of over $30.7 billion that consists largely of multi-family property loans.
2. For First National multifamily clients looking for financing, it’s pretty much business as usual right now due to the company’s access to liquidity.
3. Since March, the debt market in Canada has largely frozen and this has affected both financing activity and cost of capital depending on the lender and the lender’s access to liquidity. Several lenders are now sitting on the sidelines as they gauge the market.
4. The good news for multifamily is that there is still significant capital available through CMHC as it continues to support the market overall.
5. However, fewer insured lenders are currently active in the marketplace; First National being one of perhaps four or five doing transactions compared to 10 lenders in normal times.
6. It is easier to borrow for one through five year terms than for 10-year terms in this environment because the Canada Mortgage Bond Program – which most lenders use to fund insured mortgages – has far lower supply of 10-year money.
7. Spreads have widened as demand for capital has increased and the supply of capital has diminished.
8. The challenge for lenders is that while bond yields drive the term side of the financing equation, Government of Canada bonds do not represent a lender’s real cost of capital.
9. In practical terms, five- and 10-year insured mortgages were being offered at 2.5% to 3% six months ago and even though spreads have increased in the meantime, all-in yields are now lower at about 2% to 2.25%.
10. Multifamily property owners who have established strong relationships with their lenders over the years will be able to satisfy their capital needs through this period while those who do not have close ties may have greater difficulty.
11. Cap rates on multifamily will likely be subject to more modest increases than cap rates on other asset types that don’t have the benefit of CMHC.
12. There should be more debt capital arriving in the market by mid to late summer as some lenders return but until they do, there may continue to be upward pressure on spreads over the next 60 to 90 days because of demand/supply imbalance.
Interested in learning more about First National’s perspectives on the current state of the multifamily market in your community? Please contact your advisor today.