First National Financial LP

The 2020’s promise to be the apartment decade. Are you ready?

  • First National Financial LP

Ed Kieser leads First National's Commercial Financing & Broker Services business where he has originated more than a billion dollars in commercial financing in partnership with independent mortgage professionals. In this interview, Ed discusses why apartment construction is the biggest opportunity in commercial real estate today and how his team is helping brokers secure business in the sector.

Ed, you are on the record saying that the 2020s will be the apartment decade. Why?

Simply because of a dramatic imbalance between supply and demand. Apartment construction has drastically lagged demand across Canada for the past 30 or 40 years and we’ve seen the evidence of that in very low vacancy rates in our major cities. In Vancouver, for example, the vacancy rate is around 1% and based on CMHC’s data, the national average vacancy rate is just 2.2%. This problem is now becoming acute not only because of population growth but two other factors as well. One, home ownership is out of reach for many people. Two, it’s not just young people who want apartments; those entering retirement are choosing to take their home equity off the table to fund retirement and renting instead. Whether it’s young professionals or seniors, apartments are becoming a much more accepted way to live and in fact offer a number of advantages over home ownership.

Is this playing out across Canada?

In most cities, yes. In Toronto, apartment vacancy rates remain stubbornly low with experts suggesting the city needs 10,000 new units per year compared to the current new supply of about 3,000.  In Vancouver, the creation of tens of thousands of tech jobs in new office towers is about to exert enormous pressure on that city’s drastically under-supplied apartment sector. And in Montreal, which has more apartment units than any other city, most of the stock is ready for replacement. To me, this sets us up perfectly for a decade or more of growth in rental apartment construction.

How did we get to this point?

There are a number of factors including land-use policies, rent control and the popularity of condos as an asset class over apartments.

Are apartments becoming more attractive to property owners and developers?

Again I would say yes. Condo construction offers a different value proposition for landowners in that they are effectively taking their equity off the table once the units are sold. What we’re seeing now is that many landowners are starting to favour apartments because ownership doesn’t end: they continue to earn income over the life of the apartment and then have an equity position in a property that in 20 or 30 years is incredibly valuable.

How is this affecting capitalization rates for apartments?

Well CBRE’s fourth quarter 2019 report showed cap rates for Multi-Family High Rise A-type buildings of 3.79%, making them the most sought-after property type of any asset class in Canada.

In your view, will new apartments be built this decade look like the ones constructed in the 70s and 80s?

Generally no. What we find is that demand is most acute for higher-end product. Today’s renters want custom-designed properties with amenities like swimming pools, games and party rooms, co-working space and so on. This is not what you find in old properties which were, to be kind, rather cookie-cutter.

If I come to First National with a client who wants an apartment construction loan, what can I expect from you?

That we will take care of every detail for you. We will assess the borrower, the project and its economics to ensure the numbers make sense in the context of the neighbourhood where it’s planned. We will advise your client on project contingency plans to ensure they will have adequate funds in place to cover unforeseen construction delays and cost increases. We will discuss and present various financing options, both CMHC and insured, issue a commitment letter which provides your client with the confidence to move forward, and advance the funds so that we see shovels in the ground quickly. And we will stay with your client to make sure there is take-out financing in place as construction advances.

So it’s like a turn-key service for my client. How much involvement do I have to have?

As much or as little engagement as you wish; it’s entirely your choice. As a lender, we will be there to support your client through the full lifecycle of their project from planning through construction and take-out financing. We want to cross the finish line together and we do everything we can to make this a win-win for you and your client.

You mentioned different financing options. Like what?

Like CMHC affordable construction loans, CMHC term loans, second loans and bridge financing. As the largest CMHC commercial lender in Canada, we are experts in matching borrowers with CMHC products including CMHC programs that provide energy rebate incentives that can offset CMHC premiums. But we also lend using our own balance sheet. This capability means borrowers don’t have to wait for CMHC loan approval to seize a time-sensitive opportunity.

Why are contingency plans important on a construction deal?

There are risks in every deal and we work with borrowers to mitigate those risks through a number of services. For example, it’s no secret that construction costs continue to rise, and construction projects are often delayed because of labour shortages. We have an experienced team that works with borrowers to ensure budgets are sufficient to cover related costs. Without proper contingencies, it’s easy for a construction project to derail or result in a much lower than expected return on investment.

Interest rates are pretty low but since a construction project takes time, what do you advise on this front?

No one can accurately predict interest-rate movements. But what I would offer is that First National provides interest rate hedging strategies and can arrange long-term financings for those who wish to take advantage of the current climate.

Final thoughts?

As a lender, we’ve geared up to do a lot more apartment business in 2020 than we did in 2019 and in 2019 we set an all-time record for commercial originations. I would be delighted to support any mortgage broker who wants to be part of what I think is going to be a period of unprecedented growth in this property sector. Whether you’ve done 10 apartment construction deals or none, we’re ready to help you grow your book.


Ed Kieser is recognized for his expertise in serving the needs of residential mortgage brokers who want to help their clients finance a commercial real estate project. If you would like to speak to Ed and or his team you can do so by emailing or calling at: 800.465.0039.

Ed Kieser, Assistant VP, Commercial Financing
416.593.2941or 800.465.0039

Devin Sembaluk, Senior Analyst, Commercial Mortgages

Lisa Wright, Analyst, Commercial Mortgages