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In many condo markets in Canada, if you ask how the market is doing, the answer is often: ‘Dead’. It always feels like a harsh answer, and not all markets are the same (see condo transactions below) but condo sales are generally difficult to collect today. As the saying goes, when life gives you lemons, you make lemonade. Today’s lemonade is purpose-built rental apartments, and in Canada, there are three solid financing paths: 1) CMHC MLI Select, 2) CMHC ACLP, and 3) Conventional apartment construction financing.
MLI Select is the best fit for most clients in that the application process is relatively fast, leverage is up to 95% loan to cost, 50-year amortizations, and a 1.1 DSCR. The point system for MLI Select is static and not fluid like ACLP i.e. if the project qualifies for 100 points, you are processed with 100 points – it is not subject to the strength and quality of other applications. MLI Select has been very popular and is a great option for building market rental. That said, in late 2024 with rents rising to new highs, CMHC started selectively applying the ‘rental stabilization holdback’ for large loans. In short, the MLI Select application leverage can get reduced from 95% LTC to 75% LTC during construction until the building is fully occupied. This equity swing is a significant issue but thankfully Citifund has bridge lenders stepping in to fill the construction gap at reasonable rates (P+1% to P+2%).
The second strong option is ACLP (Apartment Construction Loan Program). CMHC developed this product to stimulate housing and eliminate two significant variables, developer interest rate risk and rental achievement concern. With ACLP, your first construction draw sets your 10-year fixed-rate term loan. This is a great feature. Today, you would fund your construction loan at a +/- 3.60% fixed rate (versus MLI Select floating at +/- 4.60%). Additionally, there is no rental holdback for the loan which is up to 100% loan-to-cost and a 50-year amortization. These are uniquely attractive features. It is important to note, that the process involves the application being ranked based on a points score matrix (Accessibility, Affordability, Energy Efficiency, Collaboration, and Community Orientation). Citifund is monitoring the scores being approved in each two-week window. Currently, most successful applications are in the 50 to 60-point range. But there is more to the application success than the point score. CMHC weighs community outcome, construction experience, covenant/liquidity, and other components in the ranking process. While ACLP is open for applications, the current ACLP allotment for 2025 is nearly fully committed and the expectation is that the successful June 2025 applications will be approved for the 2026 budget i.e. you may get approved in June 2025 for a loan advance in 2026. Last but not least, all ACLP financings will require meaningful affordability commitments for 10, 15, or 20 years and/or inclusion in a municipal housing agreement. ACLP is a great product that fits certain projects and certain developers.
Given the complexity and timelines of the CMHC product, some clients are financing apartments conventionally and terming the building out with CMHC product once complete. The conventional debt leverage is at 75% to 85% loan to cost in most cases. The process is more certain and there are no holdbacks or bonding requirements.
Please see a selection of condo construction, apartment construction and term loan transactions below. For a more in-depth breakdown of any apartment, condo or ICI project, please reach out to a Citifund broker.
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