BOC Fueling the Fire and CMHC Pumping the Brakes | |
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Anyone who has ever been tasked with setting and managing a burn pile of wet branches and leaves knows that managing these fires can be tricky. In the rain, you needed to constantly stoke and fuel the fire. Not enough attention and the pile never burns. Too much fuel, you lose your eyebrows and need to call the fire department. The key to success is adding diesel fuel at the right time and right volume. One splash of diesel, nothing changes. Two splashes, still nothing. Three splashes, a Roaring Fire.
Tiff Macklem, Governor of the Bank of Canada, is splashing fuel on the Canadian economy to get that perfect fire. The most recent cut of 0.5% has brought the bank prime to 5.95%. Mr. Macklem has advised policy makers that he has another half point in hand and will use it if and when appropriate. Consensus is that there will be another 0.25% or 0.5% cut in December. On the condo sales front, the reduction in prime has not moved the sales needle much (yet) but many developers feel the ‘Roaring Fire’ moment is close. Buyer confidence is improving with lower rates (see chart). Additionally, the recent CMHC maximum loan cap increase to $1,500,000 (instead of $1,000,000) with only $125,000 down payment (versus $300,000) is also a big help to new buyers. This change takes effect December 15, 2024. More fuel.
While the Bank of Canada is stoking the fire, CMHC is pumping the brakes and actively slowing its insurance program. The housing corporation has announced a number of changes in 2024 that are slowing the popular MLI Select Program. The most significant changes include:
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Rental Achievement: For loans over 75% loan to cost, CMHC ‘may’ now require a rental achievement test / holdback (CMHC Advise No 256, November 15). Prior to this change, clients could borrow up to 95% loan to cost without rental achievement. In short, this change ‘may’ require meaningful more equity through the construction phase.
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Bonding: To limit construction risk, CMHC is generally requiring construction bonding or an equivalent LC or collateral security solution (CMHC Advise No 256, Nov 15). This change will limit risk but add meaningful costs to budgets and/or increase liquidity requirements from the developer.
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Environmental Point System: In BC, Step Code Three building code allowed projects to qualify for the full MLI Select 100 points. This standard was amended earlier this year to require projects to include affordability or accessibility to maximize the program.
As a long time CMHC correspondent, we are working with CMHC for clarity and exceptions to new rules. The insurance requirements have changed significantly since 2022. MLI Select was wildly popular and likely for CMHC, too popular. As 2024 comes to a close, CMHC is slowing the program with these changes. That said, it is certainly possible for them to put their foot back on the gas for 2025. Stay tuned.
For any questions about the debt market and structures available, please contact a Citifund broker.
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EAST COLUMBIA
New Westminster, BC
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CMHC MLI Select Construction Financing | |
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Citifund is please to have arranged a 79% loan to cost CMHC insured construction loan under the MLI Select program for the development of a 6-storey mixed-use rental apartment building in New Westminster, BC. The 32-month construction interest rate was set at Prime less 0.5%. | |
CMHC MLI Select Takeout Financing | |
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Citifund is pleased to have arranged an 84% loan to cost CMHC insured construction loan under the MLI Select program for the development of a 6-storey mixed-use rental apartment building in Vancouver, BC. | |
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GABRIEL CONDOS
Surrey, BC
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Citifund arranged the construction loan of $58,347,000 (89% of Loan to Cost, inclusive of DPI) for this mid-rise condo project in the City Centre of Surrey. The construction mortgage rate is CORRA priced. The equivalent rate is Prime + 0.60%. | |
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PARKSVILLE APARTMENTS
Parksville, BC
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CHMC MLI Select Construction Financing | |
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Citifund arranged a 91% loan to cost CMHC insured construction loan under the MLI Select program for two 4-storey mixed use rental apartment buildings in Parksville, BC. The 24-month construction financing is priced at Prime less 0.25%. | |
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SKYVIEW TOWNHOUSE
Mission, BC
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Citifund arranged an 82% LTC construction loan for a 99-unit townhouse development in Mission, BC. The interest rate was set at P + 1.50% and stepped down with pre-sale achievement. | |
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BRIO APARTMENTS
Saanich, BC
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CMHC MLI Select Construction Takeout Financing | |
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Funded: December 2023 & March 2024 | |
Citifund arranged two separate MLI Select CMHC insured takeout loans secured by this two-building rental complex with shared parkade. The two-loan structure allowed for the loans to fund each building as they were completed, allowing the borrower to pay out a portion of the higher cost construction loan early with the low cost CMHC financing. The overall leverage was 95% loan to cost, and the 5-year rate was set at 4.00%. | |
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DOMINION CENTRE
Calgary, AB
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CMHC MLI Select Construction Financing | |
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Citifund is pleased to have arranged a 94% loan to cost CMHC insured construction loan under the MLI Select program for an office conversion to mixed-use rental apartment building in downtown Calgary. The subject development was accepted under the City’s Retrofit Program and the City’s Development Incentive Program. | |
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THE BLOCK – OFFICE TOWER
Kelowna, BC
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Citifund arranged an interest only stabilization loan on a new best in class office building in Kelowna’s downtown core. The three-year fixed rate loan structure allowed the developer to take out the construction financing with fixed rate product with the flexible option to repay midterm without penalty once stabilization is achieved. | |
CMHC MLI Select Construction Financing | |
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Citifund arranged an 85% loan to cost CMHC insured construction loan under the MLI Select program for the development of a 5-storey mixed-use rental apartment building in Saanich, BC. The 17-month construction rate was set at Prime less 0.25%. | |
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LATIMER VILLAGE
Langley, BC
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Citifund arranged a 5-year term loan for the ground-floor retail space in “Latimer Village” in Langley, BC. The 5 year rate was locked in at 175 bps over the 5-year GOC. | | | | |
