Lesser known available CMHC options for Apartment Building Owners

CMHC stands for the Canada Mortgage and Housing Corporation, which is a crown corporation of the government of Canada. Although apartment owners are usually familiar with the benefits of CMHC loan insurance and CMHC loan terms, there are many other CMHC financing options that are not well known and may be beneficial to apartment owners.
CMHC and Commercial Property
CMHC does not directly insure loans for commercial property such as office building or retail centers. However, CMHC does permit up to 30% of a multi-residential property to be used for commercial uses such as a gift shop, office space, etc. If the area of the commercial space is less than 30% of gross floor area or lesser than 30% of the total lending value, then the revenue generated from that commercial space can be included into the total revenue of the property. However, if the commercial space is greater than 30% of the total property area, then the income cannot be added to the total revenue of the property.
CMHC Top-up
Apartment owners may want to increase their loan amount at a minimal cost. The CMHC permits existing CMHC insured loans to be refinanced up to a 65% loan to property value ratio with a premium of 1.75% that is paid only on the new money.
CMHC Mortgage Financing
CMHC will insure second mortgages until the term renewal of the existing first mortgage, which doesn’t necessarily have to be a CMHC insured loan. Then, at term renewal, the two mortgages are combined into one new CMHC. This is beneficial in a rising interest rate environment because a CMHC insured the second mortgage provides a way to increase the loan amount during an existing loan term rather than waiting for the maturity of the first mortgage.
CMHC also insures loans for capital improvements to a maximum of 85% of property value.
CMHC also permits floating rate term loans for terms of at least 5 years. These situations would be beneficial when rates are decreasing or early repayment is anticipated.
Overall, many CMHC financing options are overlooked and not understood very well by apartment investors, so it is important to learn all of the different options available and see which ones can be beneficial.
By: Daniela Peeva |  June 2019

Thriving Tech and Ecommerce Sectors Drive Canadian Commercial Real Estate Records in the First Quarter

Industrial availability dropped to a record low in Q1 2019, while office markets across Canada had some of the best results in recent memory

Toronto, ON – April 1, 2019 – A flourishing tech sector and bustling e-commerce activity continue to re-shape the Canadian commercial real estate (CRE) landscape. Office and industrial property markets logged new records in the first quarter of 2019 and saw some of the strongest demand in recent memory, according to CBRE’s Canada Q1 2019 Quarterly Statistics report.

Canada’s office real estate recorded the most vigorous leasing activity in years, primarily spurred by a rapidly expanding tech sector. Overall, the national office property vacancy rate decreased by 40 basis points (bps) quarter-over-quarter to 11.5% in Q1 2019, the lowest level since Q2 2015. The amount of office product under construction nationwide in the first quarter reached 16.0 million sq. ft. for the first time since Q4 2015, as Vancouver saw an additional 1.4 million sq. ft. of new office development break ground this quarter.

The rise of online retail sales, and the associated warehouse space needed to keep up with consumer demand, has pushed the Canadian industrial market into overdrive. The national industrial availability rate dropped to a new record low of 3.0% in Q1 2019. To meet user demand for taller clear heights, larger door counts, and specialized warehouse configurations, 22.6 million sq. ft. of industrial space is under construction, the bulk of which is in Toronto and Vancouver. This is the highest level of national industrial development seen since 2015.

“Canadian office markets continue to gather momentum, in large part as a result of rapidly growing tech and co-working sectors. The remarkable office market momentum continues to build, but tenants have fewer and fewer options if they don’t plan ahead,” commented CBRE Canada Vice-Chairman PaulMorassutti. “Meanwhile industrial developers are responding to chronic space shortages with new construction, while tenants are opting to secure space prior to construction completion. In Toronto, all new supply delivered in Q1 2019 was pre-leased, and 77.6% of the 9.58 million sq. ft. under construction already has tenancies in place.”

Here are some of the other commercial real estate records logged in the first quarter:

  • Downtown Toronto office vacancy tightened another 10 bps, dropping the rate to a new record low of 2.6% in the first quarter.
  • Montreal’s downtown office vacancy now sits at 8.6%, the lowest it has been since Q4 2013, with tech company growth playing a key role in this decline. The downtown core has had 819,500 sq. ft. of new product delivered over the past eight quarters, with 998,139 sq. ft. of additional space under construction as of Q1 2019.
  • Calgary experienced 289,515 sq. ft. of positive net absorption of downtown office space in Q1 2019, the largest quarter of positive absorption since the oil downturn in 2014. Much of the activity came from tenants taking back space previously listed for sublease, spaces being converted to co-working uses, and landlords turning unoccupied supply into amenity space.
  • Toronto’s industrial market, which has had 16 consecutive quarters of positive net absorption, saw its availability rate hit an all-time low of 1.5% in Q1, with 2.2 million sq. ft. of positive net absorption.
  • Calgary’s industrial market, which has logged nine consecutive quarters of positive net absorption, had a further 649,080 sq. ft. of space taken up in the first quarter of 2019.
  • The Halifax industrial market had 50,465 sq. ft. of positive net absorption in Q1, the ninth straight quarter of positive net absorption for that city.

“In recent years, the Canadian real estate market had been somewhat polarized between areas of pronounced strength and areas facing challenges; however, this quarter showed more momentum for cities across the country, including hard-hit Alberta,” said Morassutti. “It’s worth noting that while overall office vacancy has remained stable quarter over quarter in Edmonton and Calgary, the amount of sublet space on the market – which serves as a bellwether for the office segment – decreased by 25.1% and 8.6% respectively. This is a promising indication that Alberta’s CRE conditions look to be improving at long last.”

For further details and insights, download CBRE’s Canada Q1 2019 Quarterly Statistics report here.

Rental Market in Canada – Fall 2018

A Falling Vacancy Rate

Once per year, Canada Mortgage and Housing Corporation provides a comprehensive review of rental markets across Canada. The survey occurs during the first half of October. Results for this year were released on November 28.

For October 2018, the vacancy rate was 2.4%, which was a substantial drop from the 3.0% rate recorded a year earlier. The vacancy rate for 2018 is far below the average of 3.3% for the entire period shown in this chart. The reduction in vacancies resulted in more rapid rent increases, at 3.5% this year. Over the entire period shown, the average increase was 2.6%. This data shows that the situation has become increasingly challenging for Canada’s tenants.

 

 

Vacancy rates fell in 7 of the 10 provinces. Manitoba, BC, and Ontario saw small increases in their vacancy rates. These three provinces also saw the most rapid rent increases. The lowest vacancy rate is now in PEI, followed by BC and Ontario. The highest vacancy rates are in the three provinces where economies have been hurt by the plunge in oil prices (Saskatchewan, Newfoundland and Labrador, and Alberta). These provinces saw the weakest rent increases.

 

Interpretation

Since the data is collected only once per year, it is difficult to construct any models for analysis or forecasting of rental markets. The author’s experimentation over many years, for many different communities across Canada, has resulted in statistical models that have low “reliability”. But, those low-reliability results have been surprisingly consistent, and have led to a conclusion: the two most important drivers of changes for the vacancy rate are job creation during the past year (which allows more people to buy or rent housing) and total completions of housing during the past year.It is tempting to expect that completions of new-rental apartments would be important, but the author’s analysis has found that this is rarely the case.

On reflection, this makes sense:

  • The rental market is part of a complex housing system in which there are very large flows between ownership and renting, and between different forms of housing.
  • Expansion of the total stock of housing offers people more choice: even when people move into new home ownership dwellings, that move sets of a chain of other moves. Much of the time, that chain of moves includes someone moving out of a rental, which creates an opportunity for a new tenant.
  • Moreover, the tenure on a new dwelling is not fixed for all time. In particular, it is well known that many new condominium apartments are occupied as rentals. In addition, some low-rise dwellings (single-detached, semi-detached, and town homes) are ostensibly built for ownership but are made available as rentals.

It is also tempting to expect that changes in resale market activity will affect the rental market. But, once again while the statistical analysis produces unreliable results, over many repetitions it has been found that resale activity has little effect on vacancy rates. This also makes sense on reflection. Most of the time a resale transaction does not add to total demand for housing (the buyer usually moves out of a different dwelling) and it usually does not alter the total supply of housing (unless the new buyer adds or removes a basement apartment).

Employment Trends

Our impressions about the employment situation are largely based on data from Statistics Canada’s Labour Force Survey (“LFS”). This data indicates that during the year up to this September, employment in Canada expanded by 1.2%. This is slower than the rate of population growth (1.3%), and this therefore should be considered a mediocre result. Based on this data, we would expect that housing demand would be weak, and the drop in the vacancy rate this year would be a surprise.

However, the data from the LFS is derived from a sample survey and like all such surveys, it can produce errors. Statistics Canada has a second survey (Survey of Employment, Payrolls and Hours, or “SEPH”), which is based on data from employers, and is therefore likely to produce more-accurate data. This data receives much less attention because it is published almost two months after the LFS (the most recent data is for August). The two datasets usually tell similar stories. At present, however, SEPH shows growth of 1.8% (as of August) versus the 1.2% shown by the LFS (as of September).

Over the entire period shown in this chart, job growth averaged 1.5% per year. Strong job growth in both 2017 and 2018 helps to explain the drops in the vacancy rates that were seen in both years. Housing completions were at above average levels during 2017 and 2018 (the chart shows the figures for 12 month periods ending in September). These elevated volumes of new housing supply provided some relief for rental markets. Without this additional housing supply, the drops in the vacancy rates in 2017 and 2018 would have been even larger than they were.

 

Looking Forward

The mortgage stress tests have resulted in reduced buying of new and existing homes. It takes some time for changes in purchases of new homes to translate in reduced housing starts (and even longer for housing completions to be affected). Increasingly, it appears that housing starts have peaked, and may have started to fall. The next chart illustrates that total housing starts were very strong during 2016 and 2017, but the trend has started to fall during 2018. A more detailed examination would show that housing starts have turned sharply for low-rise dwellings (single-detached, semi-detached, and town homes) but remain very strong for apartments. During 2019, starts for apartments will gradually reflect the reductions in sales that have occurred this year. This is explored in more detailed within the Housing Market Digest reports (for Canada and the regions) that can be found here: https://goo.gl/kJ6mcC

Following from these trends for housing starts, housing completions are expected to fall only slightly during the coming year, meaning that new housing supply will continue to provide some relief for the rental sector. However, housing completions are expected to fall considerably during 2020. As for employment, higher interest rates can be expected to gradually weigh on job creation during 2019 and 2020.

For 2019, a combination of continued high levels of housing completions and a slowdown of job creation should mean that there will be little change in the apartment vacancy rate (perhaps a drop to 2.3% from the 2.4% seen in 2018). The low vacancy rate can be expected to result in continued rapid rent increases, at a rate of at least 3%.

During 2020, the reduction of housing completions that will result from the mortgage stress tests will add to pressures in the rental sector. For 2020, the vacancy rate is expected to drop further (approaching 2.0%) and rent increases will quicken.

Government Policies at Cross Purposes

The federal government has announced plans to make major expenditures in support of affordable housing ($40 billion over 10 years). The federally-mandated mortgage stress tests, by reducing movements out of renting, will add to pressures within rental housing markets, and are operating at cross-purposes to the National Housing Strategy.

 

 

 

Disclaimer of Liability

This report has been compiled using data and sources that are believed to be reliable. Mortgage Professionals Canada Inc.
accepts no responsibility for any data or conclusions contained herein. Completed by Will Dunning, November 28, 2018.
Copyright: Mortgage Professionals Canada 2018

Why use Mortgage alliance Commercial

Top 5 Reasons to Use Mortgage Alliance Commercial Canada (MACC)

 

  1. MACC is Licensed across Canada with offices in Quebec, Ontario, Alberta, and BC
  2. MACC has maintained privileged relationships with all major lenders across the country to allow our clients to access better terms and conditions for their financing needs
  3. MACC simplifies and manage the entire process of any lending transaction from pre-screening requirements and options; completing loan underwriting and lender negotiations, through to the disbursement requirements, to ensure successful completion and funding.
  4. MACC is an approved CMHC correspondent and experienced in preparing and presenting applications directly to CMHC for underwriting and approval. This provides access to preferred rates and terms, and higher loan to value ratios. This includes multi-unit rentals, mixed-use, purchases and refinances. We pre-screen deals to determine potential loan amount available based on property information provided such as rent roll, and statement of income and expenses.
  5. MACC has over 20 years’ experience in the commercial broker industry and a significant track record in deal success covering all commercial industries. We are well-positioned to guide clients through the most complex transactions and obtain the best options in the market. See our website for just a few of the projects completed.  http://macommercial.ca/projects/

 

 

 

Marion Cook  | November 2018

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$70.8 million affordable housing investment for Ottawa

Middle-class families in Ottawa will benefit from 243 new rental units being built in the city with an investment from the federal government.

Two projects will be financed through the CMHC’s Rental Construction Financing initiative including $70.8 million for the construction of a twenty-seven storey building with 227 rental housing units. More than 200 will have rents lower than 30% of median household income in the area.

“The project represents a major step forward in sustainable design with ambitious design targets to reduce energy consumption by 50% and reduce carbon emissions by over 75% with an integrated geothermal system for the project,” said Neil Malhotra, Vice President, Claridge Homes who will build the 70 Gloucester development.

The other will be $3.9 million for a passive housing Centretown Citizens Ottawa Corporation project on Arlington Avenue. It will feature 16 rental housing units with rents well below 30% of median household income in the area.

“Through the National Housing Strategy, more middle class Canadians – and those working hard to join it – will find safe, accessible and affordable homes where their families can thrive and have the stability and opportunities they need to succeed. Our Government is committed to increasing the supply of rental units for Canadians through projects like the ones we are announcing today,” added Jean-Yves Duclos, the Minister responsible for Canada Mortgage and Housing Corporation.

 

by Steve Randall  Ι  24 Sep 2018