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Resources & Insights

Original perspectives and personal viewpoints on developments and industry trends.

Pulling together to meet Toronto's affordable housing crisis

Mar 11, 2020
ROI and profitability
First National Financial LP

Ridgeford Charitable Foundation has provided affordable housing in Toronto's east end for almost four decades.  During this period, the city's population has expanded exponentially but the supply of affordable housing has not. Ridgeford decided to do something about it.

The 'something' has turned into a multi-unit, high-rise residential development at 25 Thunder Grove in Scarborough that will open in December 2020 with support from CMHC, First National and the City of Toronto. This new development will feature 186 one-to three-bedroom apartment units with rental rates that will remain affordable for at least the next 35 years.

Planning for this important project began six years ago when Ridgeford's Board of Directors adopted a strategic plan and a key priority: grow its affordable housing portfolio. This was a laudable goal but not without challenges. One was securing new funding.

Since opening its first 247-suite affordable housing project in 1984, the Foundation relied on low-cost mortgage financing from CMHC under Section 95 of the National Housing Act. This funding system was created by the federal government of the day to provide a stable source of long-term debt capital that would support the creation of affordable housing stock. The program enabled the Foundation to achieve its social mandate as an affordable housing provider of quality rental units. However, the Foundation's Operating Agreements under this program were set to end in 2017 and 2019, requiring the Board to secure new sources of capital to expand Ridgeford's property portfolio.

The good news was that the Foundation had two substantial advantages. First, the value of its properties in Scarborough had significantly appreciated since opening and were almost debt free. Second, those properties had in-fill potential because of the availability of excess land. The "free cost of land" combined with existing property equity meant that securing post Section 95 financing was not perceived to be a stumbling block.

Intensification in Action

The Ridgeford Board identified 25 Thunder Grove as the possible location for site intensification, and then hired a planning consultant (Tim Welch Consulting Inc. or "TWC") to help move the concept forward in a strategic and systematic fashion. Mr. Welch and the Ridgeford organization made a formidable team.

Using vacant land contiguous to Ridgeford's current facility, the decision was made to build an additional apartment tower, 12 floors in height, tied into an existing underground parking garage. From there, the project team was enlarged to include a cost consultant and an architect to develop preliminary estimates and drawings. Then, the Ridgeford team entered into early discussions with the City Councillor representing the local ward and the City itself to seek project feedback and identify any community concerns. (Whether for social housing or commercial purposes, residential intensification projects must always be handled with care and we provide advice on this important topic here.)

As all early indications were positive, the Board decided to drive on. More advisors were engaged; about a dozen in total including landscape planner, surveyor, and mechanical/ structural engineers to ensure a top-quality project for the neighbourhood. A preliminary capital budget of $55 million was developed along with an operating budget that took into account costs/cash flows from both existing and new Ridgeford apartment towers. First National was asked to review cash flow proformas and budgets at this early stage as a means of stress testing financial assumptions. All in, it was estimated that a net operating surplus could be achieved.

In early 2017, the Foundation received further good news. Toronto would exempt the new development from property taxes for 25 years based on a recommendation from the City's Affordable Housing Office. It was a welcome decision that provides net present value relief of some $2.8 million over the term to assist Ridgeford in providing affordable rents.

Project Funding

Now, it was time for the rubber to hit the road. The Board called for an expression of interest from several lenders including some of Canada's big banks, credit unions and First National, Canada's largest commercial mortgage lender and a leading lender to the country's affordable housing industry. Ridgeford's original 'ask' was for $55 million.

Jamie McCallum, Assistant Vice President of Commercial Financing at First National received the request as he had already served as an informal advisor to the project's housing consultant for the better part of two years with assistance from Daniel Bragagnolo, our Director, Commercial Financing. Based on First National's deep understanding of, and commitment to, affordable housing, reputation for service, and appreciation for what Ridgeford sought to accomplish, our team put together the winning bid. First National's 10-year, $13 million, CMHC-insured financing began in April 2019 and provides equity for new construction. The loan was secured by Ridgeford's existing 247-suite apartment.

"We were all in on this project first because it was sponsored by Ridgeford, an organization that has 35 years of proven expertise, second because it met our underwriting criteria and third because First National is supportive of the affordable housing sector," said McCallum. "We were fully prepared to take the entire loan, but our contribution ended up at $13 million with the remaining $42 million provided by a new direct lending program established by CMHC."

When it opens, the new 12 storey apartment tower will feature one-bedroom units with rents starting at $930 and two-bedroom suites with rents starting at $1,090. Based on a survey by CMHC, these rates are 80% of average market rents in Toronto, providing a significant benefit to low- and moderate- income Torontonians.

Key Messages

According to Bragagnolo, Ridgeford Charitable Foundation did everything right in tackling this project. "They developed a strategic plan well in advance of Section 95 Operating Agreement expiry, they consulted with the local ward Councillor about their vision for intensification before applying for permits, they engaged knowledgeable project partners and they secured appropriate sources of financing that will support construction and ongoing facility operation for years to come. Thunder Grove is the gold standard of how to build an affordable housing project in Canada and First National is proud to have played its part."

A Broadly Canadian Solution

First National has provided financing solutions to private as well as not-for-profit developers like Ridgeford Charitable Foundation across the country for many years. Our depth, breadth and diversity of experience is unique in the Canadian mortgage financing industry, while our expertise in property intensification makes us the logical choice for property owners looking to maximize the value of their assets for private and public advantage. 

Should you wish to consult First National on financing your affordable housing project, you can contact any member of our Commercial Financing team.

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