First National Financial LP

Jeremy Wedgbury’s key observations from the Canadian Apartment Investment Conference

  • Sep 16, 2020
  • First National Financial LP

Canadian apartment owners, developers and lenders gathered virtually on September 15, 2020 for the annual Canadian Real Estate Forums’ Canadian Apartment Investment Conference. During the expert panel discussion "Construction & Debt Financing: Has It Become More Challenging Or Is Capital Readily Accessible For Owners And Developers Across Canada?” First National's Jeremy Wedgbury, Senior Vice President, Commercial Mortgages, offered the following insights.    

First National entered the pandemic with a substantial commercial mortgage origination pipeline and borrower demand has not waned since, particularly for CMHC insured product and as a result, lending volumes in the spring were up 25% compared to 2019 which was a record year.

With rates as low as they are, it’s a popular time to finance new apartment construction and First National is currently engaged with approximately 50 separate apartment building projects across Canada.

First National has five, 10, 15 and 20-year money to lend and 10-year terms are the most popular with borrowers at the present time – accounting for approximately 75% of current business volume.

With a $33 billion book of commercial business, First National specializes in apartment lending, meaning it is able to help owners navigate pandemic pressures – and this was evidenced in the spring when the Company formed a special team of underwriters and credit experts to advise borrowers on mortgage financing and deferral strategies even though deferrals proved to be unnecessary in most cases.

CMHC’s policy change on the use of proceeds for equity take-outs was surprising but it has not stopped First National borrowers from getting the financing they need to reinvest and it has not impacted the Company’s volumes.

First National finances apartments in urban and suburban markets and has noted faster than normal lease-ups in new suburban apartments as the pandemic has shifted tenant demand outward from downtown Toronto, Vancouver and Montreal … but urbanization will return in a post COVID-19 environment.

Luxury apartment owners in downtown Toronto, Vancouver and Montreal are feeling the affects of the pandemic in the form of higher vacancies and as a result, underwriting decisions are now taking this factor and pressure on proforma luxury rental rates into account.

Apartment rental rates increased substantially over the past three years in many markets to the point of unaffordability so the pause in rate inflation was inevitable in any event.

Landlords have done a remarkably good job of responding to tenant needs during the pandemic and deserve credit for the responsible actions they have taken and the safety measures employed which include touchless tours for prospective tenants.

Rental receipts have been strong to date, which is a testament to the skill displayed by landlords and the wage subsidy support provided by the government – although it remains to be seen what will happen when that support is removed.

Interested in learning more about First National’s apartment financing services and the state of the market in your area? Please contact your representative today.