On July 16, 2020, Canadian Real Estate Forums brought together five multi-residential market experts including Jeremy Wedgbury, First National’s Senior Vice President, Commercial Mortgages to discuss the state of the industry during COVID-19 with particular focus on gauging the level of confidence that exists for purpose-built residential development. Here are some of Jeremy’s key takeaways.
- First National’s origination volumes are at record levels which is indicative of the Company’s confidence in and commitment to the multi-family residential sector.
- The lion’s share of demand for First National commercial mortgage financing is coming from the multi-family sector which accounts for some 85% of the Company’s $33 billion commercial mortgage book.
- First National’s lending pipeline is very robust particularly for new apartment construction loans.
- Despite pandemic risks, developers want to build apartments and are continuing to do so with First National’s support in recognition of the long-term value of owning purpose built rental.
- A year from now, apartment sector vacancy will continue to be low as will interest rates and this combination of factors will fuel ongoing construction activity.
- In developing their proforma financial plans, developers must be cognizant of rental rate pressure in areas such as downtown Vancouver that have experienced short-term weakness due to border closings that are keeping international student tenants at bay.
- While rental rate inflation is not the driving force it was before the pandemic hit, it is unlikely that there will be a significant or lasting decline in apartment rental rates given the demand/supply imbalance in the market.
- Landlords in Alberta are reporting success in re-leasing vacant apartments but the provincial economy continues to be harder hit than other parts of Canada because of low oil prices.
- Concerns early in the pandemic lockdown that tenants would fail to pay rents in large numbers have dissipated as a result of federal government support programs such as the Canada Emergency Response Benefit.
- Developers thinking about constructing mixed-used properties with a retail component are likely to face challenges because there is strong potential for further deceleration in demand for retail space that will drive rental rates lower and impede lease-up activity.
- First National is preparing for the next phase of economic reopening with a special project that will enable its commercial team to sustain its competitive edge for clients even while physical distancing protocols remain in place.
- Now more than ever, the experience, character and liquidity of borrowers are critical attributes for success that First National covets as Canada’s largest apartment lender.
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.