As I compose this message to you, many parts of Canada are firmly locked down by a third wave of COVID-19. It is a difficult time and yet all indicators are pointing to a recovery for our economy and the health of all Canadians in the second half of 2021 as the country’s vaccination program ramps up.
The Bank of Canada recently upgraded its forecast for Canadian GDP for the year, predicting economic growth of 6.5%.
At First National, we are fortunate that our business works exclusively in real estate financing and with customers who believe – as we do –in staying the course. Last night in reporting our financial results for the three months ended March 31, 2021, we saw the latest evidence.
Our mortgage book reached a record $119.6 billion, meaning it has grown over $6 billion since the pandemic began. There are two drivers of Q1 growth. Our single-family business registered originations of $4.4 billion and your commercial team funded $1.8 billion. These large numbers continue to earn First National the title of largest non-bank mortgage lender in Canada and largest apartment lender.
What is not revealed in these figures is construction commitment levels. During the first quarter, we committed to fund approximately $450 million new business: $200 insured and $250 million conventional comprised of apartment (affordable and market), industrial and market condominiums. We now have $3 billion committed in our construction book alone, which is great news and indicative of our confidence in the future of Canada’s real estate market.
Since we know that a new reality is shaping up in our markets – one that may include rising interest rates and certainly involves construction cost inflation – our agenda for the year is to ensure that through our products and services, First National addresses what you need and when. We plan to do this in several ways.
First, by making funds – short and long-term – readily available. First National’s considerable liquidity and constructive view of lending in this environment make it possible for us to provide everything from bridge financing (a popular stop-gap option while waiting for CMHC funds flow) to insured and conventional terms ranging from one to  years. As a sign of the times, 5-year money is currently most popular because of the steepening yield curve. Given the current level of competition for properties that allows sellers to demand 30-day closings with no conditions, First National’s ability to commit quickly is a distinct advantage that we encourage you to call on. We will also work with you to arrange appropriate contingency funds for all-in construction costs.
Second, by offering our new Core Conventional financing program as a cost-effective alternative. We launched this program at the beginning of the year in response to requests from our largest borrowers who wanted the same high-quality execution on their conventional financings as they receive on insured loans. Since then, demand has exceeded our expectations. We encourage you to ask about the program’s features and benefits particularly as they relate to industrial, apartment and specific types of office and retail properties.
Third, by providing interest rate-hedging strategies and our Early Rate Lock program. The Bank of Canada has now pulled forward its expectation of policy interest rate increases to the second half of 2022 (previously 2023) but there are other factors that may also drive rates higher faster including inflation caused by President Biden’s $1 trillion American Rescue Plan. We have already seen changes in the bond market moving the interest rate needle, making hedging strategies worth contemplating.
Fourth, by being an enlightened source of market information. By staying on top of trends at the local and national level we will be here to help you capitalize on opportunity and manage emerging risk. A recent example is our Insurance Briefing and related website content that provides expert advice, including from two of our borrowers, on how to navigate today’s hard market of rising costs and limited coverage.
We recognize that there are many lenders ready to serve you, but I would argue that few are able (or willing) to provide as many insured and conventional mortgage options as First National and not one is able to respond as quickly and expertly to your needs. The difference is our fiercely independent and entrepreneurial culture forged over 30 years as a proudly Canadian commercial property lender.
Please let us know how we can help by contacting your First National advisor. In the meantime, we wish you and your team a safe and productive spring.