Insights from Jeremy Wedgbury during the Canadian Apartment Investment Conference on September 5, 2018.
1. A bull market is underway in apartment construction.
Multi-unit residential construction entered a sustained growth phase two years ago that has accelerated recently as developers re-discover the advantages of owning new rental properties.
2. Rental rates have escalated dramatically for new builds.
Smart owners, with the support of their lenders and the use of innovative financing products, are taking the time to lease up their properties with the best tenants to achieve the highest rental rates possible.
3. Capital is available for the right builders and the right projects.
Achieving desired loan amounts for new apartment construction is not a roadblock for builders with a proven track record – if they know where to look for financing.
4. Construction cost inflation is front of mind.
Labour and building material cost inflation and its affect on profit margins has surpassed interest rates as the number one concern for First National's borrowers.
5. Developers are leveraging First National's community of builder-borrowers.
First National serves as a nexus point for borrowers who are looking for development partners and for economies of scale to combat rising construction costs.
6. Interest-rate strategies are essential for construction projects.
The prospect of higher interest rates makes it necessary for builders to consider interest-rate hedging strategies – including early rate lock – to realize ROI objectives at takeout.
7. Borrowers are using short-term money to invest in older apartment stock.
On average, our borrowers are investing between $5,000 and $50,000 per door to renovate older units and using short-term financing – including for capex – to achieve higher rental and cap rates.
8. Financing apartment renovations makes sense, to a point.
Smart borrowers renovate only after seeking assurance that they can achieve their rental-rate goals and can complete construction in a timely manner to avoid undue interest-rate risk.
9.Technology is coming to commercial real estate.
The ability to manage big data will reshape aspects of the commercial market and could improve decision-making for lenders and borrowers and make it faster to achieve AML compliance.