Apartment owners and developers from across the country gathered in Toronto on September 4 for the Canadian Apartment Investment Conference. During the panel discussion "Everything About Financing," First National's Jeremy Wedgbury, Senior Vice President, Commercial Mortgages, made the following key observations.
Canadian cities that need apartments the most continue to face acute shortages of rental supply.
Despite recent growth in apartment construction, much more new supply is needed to accommodate population expansion in Canada’s major cities. Affordability is best addressed when demand and supply move closer to balance.
Lending on apartment assets is a core focus and capability for First National.
As Canada’s largest commercial mortgage lender with approximately $30 billion under management, First National invests in a variety of assets, but the apartment sector is our largest market. In 2019, we expect to lend upwards of $6 billion in the sector. Our deep exposure provides us with a unique perspective on industry trends.
First National finances apartments using a wide variety of mortgage products.
Although known as Canada’s largest CMHC commercial mortgage lender, First National leads the market in conventional land acquisition, construction, bridge, mezzanine and second mortgages for apartment developers and owners.
Innovative debt structures have emerged since the financial crisis.
In the United States, it’s common to see a capital stack with a variety of tranches of senior and junior mortgages. To meet the needs of Canadian borrowers and investors across the risk spectrum, First National has become adept at developing similar layered debt strategies to get major projects off the ground.
Pari passu mortgages can be effective for apartment repositioning.
When financing is needed to renovate older apartment stock, borrowers typically use bridge loans, however some clients will take an insured term loan from First National, paired with one of our conventional second mortgages. The second mortgage is re-financed in 1 to 2 years upon reposition using pari passu CMHC insured loan. This approach allows the borrower to take advantage of the current low interest rates for a portion of the debt stack.
The multi-family space is well bid by CMHC.
The liquidity provided by CMHC, CMHC’s willingness to put 35- to 40-year amortizations in place and the competitive economics of insured financings mean apartment owners and developers are well served by domestic financial institutions with the know how to navigate CMHC’s rules.
There is no need to wait for a CMHC approval with First National workarounds.
Due to demand for insured financing, CMHC can take 10 to 14 weeks to approve a deal. Rather than delay funding, First National provides bridge financing strategies to keep apartment projects moving forward and in the interim, can lock the interest rate on CMHC loans before they are funded.
Concerns about interest rate increases are no longer worrying borrowers.
A year ago, the risk of increases led many borrowers in the apartment sector to lock in the interest rates on their loans. Today, global economic volatility has substantially dampened that concern.
It’s not just products that separate First National as an apartment lender.
Our empowered advisors provide a variety of complimentary planning services to help apartment owners employ the financing strategies that are best suited to their risk-return objectives.
Interested in learning more about First National’s financing services for apartment owners and developers? Please contact a First National team member today.