The 2022 Canadian Mortgage Debt Market – Nine Months In
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For those old enough to remember, the 1985 film Back to the Future followed Marty McFly on an adventure where he travels back in time in a plutonium-powered DeLorean. McFly sees his hometown in a simpler era juxtaposed to his modern-day reality. For this market update, let's get into the Citifund DeLorean and travel back nine months to January 1 of this year. On New Year's Day 2022, the Prime rate was 2.45% and the BOC 5-year bond yield was 1.40%. Today, Prime is 5.45% (up 3.0%) and the 5-year bond yield is 3.30% (up 1.90%). Great Scott!!
To put the rate increases in context, a $20,000,000 construction loan went from an interest reserve requirement of $520,000 to $970,000. Equity calls (or loan increases) across the board. On a typical conventional term loan of a $20,000,000 commercial property purchase, the January 2022 5-year rate was approximately 3.0% and the asset could support a $13,300,000 loan (67% loan to cost). Today, a typical 5-year rate is 5.0% and the same asset can only support $10,850,000 (54% loan to cost). Buying power is down. See chart below.
It has been a dramatic nine months and the commercial debt market in Canada is recalibrating. Some lenders are not writing new business, sitting on the sidelines to see how the rate changes impact real estate and their existing loans. The Bank of Canada (BOC) is next meeting October 26th and the market consensus is that the Prime rate is going up again (likely 50 bps) and that the BOC will continue until inflation slows.
Some investors and analysts are forecasting rates settling back down after inflation gets under control in 2024 (do these people have a DeLorean time machine taking them to the future?). Supporting this theory, 10-year bonds are at a lower yield (by 20 bps) than 5-year bonds today. Bottom line, time travel only exists in the movies, and we will have to wait and see. As a mortgage brokerage, our pool of lenders has effectively shrunk, for now. Thankfully, there are lenders still open for business and Citifund is placing new debt on land, construction, and term (see examples below).
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“Origin” Affordable Rental Housing
North Vancouver, BC
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CMHC MLI Flex Term Financing | |
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Citifund is pleased to have arranged the CMHC insured MLI Flex takeout financing for “Origin”, a 225-unit rental apartment building in the heart of Lonsdale in North Vancouver, BC. In a volatile interest rate environment, Citifund was able to provide the borrower with rate fixing and creative options that helped produce a 91% LTC take-out facility at a market leading rate. The financing allowed the borrower to payout the construction financing, repatriate equity and sustain strong cash flow for the foreseeable future. | |
Water Street by the Park
Kelowna, BC
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A $284,560,000 financing was arranged by Citifund for the construction of this highly sought-after landmark twin tower development by the Okanagan Lake in Kelowna, BC. The loan will support the construction of a six-floor podium and 496 condo units. Once complete, this project will be one of the tallest (42 storeys) buildings in the BC interior. | |
Hendry Place Apartments
Vancouver, BC
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Citifund coordinated a 95% LTC and 70% LTV bridge take out loan for this newly constructed, 68-unit rental apartment/townhome project in the Kensington-Cedar Cottage neighbourhood of Vancouver. This financing was approved at Prime + 1.80% for a 30-month Interest Only term, allowing the borrower to repay the construction loan, stabilize the building and maximize the cash on cash return. | |
Rutherford House
Nanaimo, BC
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CMHC MLI Select Construction Financing | |
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Citifund secured a 95% LTC CMHC insured MLI Select construction loan for this 152-unit rental apartment building development in Nanaimo. The 24-month construction term was fixed at Prime minus 0.35% and allowed the borrower to utilize the full appraisal land lift with no cash equity injection required. | |
Wildcat Industrial
Colwood, BC
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Citifund is pleased to have arranged the $44,000,000 construction financing for “Wildcat Industrial”, a light-industrial strata complex within the Allandale District in Colwood, BC. When the deposit insurance (DPI) and the loan amount are combined, the project leverage is over 90% loan to cost with pricing at Prime minus 0.25%. | |
An 80% LTC construction financing for this 98-unit condo project in the Douglas neighbourhood of downtown Langley. The interest rate for the total capital stack was fixed at the time of funding, equivalent to Prime + 0.41%. The financing allowed the borrower to utilize the full appraisal land lift with no cash equity required. | |
Nell's Place
Vancouver, BC
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CMHC Select Construction Financing | |
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Citifund arranged an 87% LTC CMHC insured MLI Select construction loan for this mixed-use commercial and residential rental apartment building in East Vancouver. The 24-month construction term was set at Prime minus 0.25%. This new CMHC financing program permitted the borrower to convert the construction loan into a standard CMHC term loan with a 50-year amortization upon construction completion. | |
Industrial Building Development
Langley, BC
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A 75% LTC (with land at appraised value) construction financing for the development of a 17-unit industrial building in Langley, BC. The 18-month term was set at Prime + 1.25%. | |
King & Columbia
Vancouver, BC
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Citifund arranged an 82% LTC construction financing for this 16-unit townhouse project in the Cambie Village neighbourhood. With the Deposit Insurance Facility included, the blended rate was approximately 3.4% at the time of funding. | |
The Thomas
Maple Ridge, BC
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Citifund arranged an 85% LTC construction financing for this 57-unit condo development in Maple Ridge. The blended rate across the total capital stack was set at Prime + 0.65%. | |
The Renfrew Quarters
Vancouver, BC
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CMHC MLI Select Construction Financing | |
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Citifund was pleased to arrange a 78% LTC CMHC insured MLI Select construction loan for this mixed-use commercial and residential rental apartment in the Renfrew-Collingwood neighbourhood of Vancouver. This development was approved under the City of Vancouver’s affordable rental program (Rental 100) and qualified for MLI Select through energy efficient construction. | |
Townhouse Development Site
Vancouver, BC
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Citifund arranged a 65% LTV land financing for the purchase of a townhouse development site within the Queen Elizabeth neighbourhood. This financing was arranged at Prime + 1.85%. | |
Haighton Manor
White Rock, BC
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Citifund arranged a 78% LTV CMHC insured term financing for the refinancing and equity take-out of this 57-unit rental apartment building. The 10-year term was fixed at 3.44% with a 35-year amortization. The financing allowed the borrower to payoff the existing debt and extract equity out for future investment. | |
Canature Building
Langley, BC
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Citifund is pleased to have arranged a $4,100,000 term loan for the acquisition of an industrial property located in the Gloucester Industrial Estates industrial area in Langley, BC. Citifund was able to arrange a five-year fixed-rate term loan at 3.50% with the option to repay or refinance after two years without penalty.
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1001 Sixth Avenue
New Westminster, BC
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A 5-year conventional term loan at 4.00% was arranged for the acquisition of this rental apartment building located in New Westminster. The rate was fixed 60 days prior to closing giving the borrower peace of mind during a volatile interest rate market. | | | | |
