Funding for Commercial Mortgages In Canada

The commercial mortgage market has been on a roller coaster ride the past two years with loans based on retail space drying up. The A lenders have increased the credit quality scale and many borrowers are faced with high fees resulting from having to place their mortgages with private lenders in an effort to stop foreclosure.

A lot of the changes to the commercial mortgage arena results from the collapse of the Commercial Mortgage Backed Securities (CMBS). The collapse of the CMBS had large institutional lenders like insurance companies and pension funds leave the market completely.
Lenders are paying stricter attention to the quality of the property, looking at whether the operator is a good one, what the neighborhood is like, and are insisting on appraisals. All this means the lenders aren’t loaning as much LTV and the vendor has to put in his own funds for the balance. Lenders won’t go over 65% LTV with some not going above 50% LTV.

Retail properties are some of the worst hit for financing with fears that if the conglomerates were to shut down some of their big box stores, there would be far too much vacant space available and makes the risk factor much higher for the lender.

An easier option for financing right now is CMHC approved rental apartments in large urban areas. Not only are they the safest, from a lender’s point of view, but with rates the way they are (around four per cent on five-year deals), never has there been a better time to look at insured loans.

Other niches, such as seniors’ care facilitations, rentals, medical buildings and local strip malls with decent tenants (i.e.: not the giant big box stores), are also areas still performing, even if there is limited money to loan on them.

There is sentiment in the marketplace that things are looking better already and investors belive that the market may have finally bottomed out and are deciding to get back into the market.

The market is picking up, interest is good, liquidity is getting better and confidence is coming back.There will be fewer buyers/investors for major commercial deals but those who get the financing will benefit from the historically low interest rates we currently have.

Warmly,

Mary Wozny