While higher interest rates and speculation about a recession dominate headlines, I am glad to share some positive news. Thanks to clients across the country, First National just reported record-setting commercial mortgage originations for the six months ended June 30, 2022.
Inclusive of renewals, our total commercial production reached $6.3 billion, 12% higher than during the first half of last year. This means we’ve now crossed $40 billion in commercial mortgages under management – a milestone we reached in May. I couldn’t be more grateful to our borrowers and partners or prouder of the 210 members of our Commercial team who dedicate themselves to delivering great service every day as empowered advisors.
Growth drivers
Growth in business volumes in a challenging market can be attributed to several factors: First National’s willingness to lend across every economic cycle, our extensive range of conventional and insured mortgage products, our leadership in the multi-unit residential sector and the efforts we make to provide value beyond a good rate of interest.
What I find noteworthy about performance this year is that about 70% of new business volumes are insured. A big reason is MLI Select. Although CMHC only started accepting applications in March, our pipeline of MLI Select fundings is large. This program has lived up to its advanced billing and will make a significant difference to clients who want to build, renovate or term out their multi-unit apartment assets. If you would like more information about the lucrative incentives on offer, and the multiple ways you can qualify, your First National advisor is ready to assist.
I’m also pleased to say we are experiencing demand in all regional markets. We’re particularly pleased with the resurgence of originations in Alberta on a return to economic growth, with the city of Calgary leading the way. As you know, we are on a mission to grow in Western Canada and are currently in hiring mode for a regional leader based in Vancouver. Should you know of an experienced lender who might like to join our team, I would appreciate knowing.
Consistent with 2021, First National is active across different asset classes and we remain bullish on apartments and industrial properties. Our Core Conventional product continues to prove its worth as a highly competitive alternative for owners of both asset types as well as select office and retail properties.
Of course, the mother of all market drivers is population growth. Canada aims to welcome over 800,000 immigrants between 2022 and 2023. This creates instant demand for housing, the most affordable of which is apartment units. Consequently, we feel positive about the long term and we think you should too.
Looking forward
Funded mortgage volumes are one indicator of the current health of our market. Another is our commitment pipeline. What our pipeline tells us is to expect a positive Q3.
Beyond that, it is difficult to put a fine point on how market headwinds created by rising interest rates will play out in 2023. Much depends on the ability of central bankers to avoid a monetary policy-induced recession. In its July statement, the Bank of Canada forecast that economic growth would moderate in 2023 to 1.75% on “tighter financial conditions,” but notably it did not forecast a recession.
That said, I do expect property trading/acquisition activity will be soft in the near term as buyers and sellers wrestle with valuations. Inflationary cost increases in labour, materials and capital will also continue to challenge the economics of building purpose-built apartments and pre-sale condominiums, particularly in the Greater Toronto and Vancouver areas – although perhaps less so in secondary markets that First National also serves.
One way to manage this risk is to create business-to-business partnerships. Over the years, First National has leveraged its extensive marketplace connections to enable many profitable partnerships between those with specialized construction expertise and those with capital and assets to accelerate property development. If you are interested in knowing more, please ask us.
Mitigating risk: Our new Mid-Range Hedge program
Unquestionably, risk is elevated any time the Bank of Canada raises interest rates rise, as they have done four times so far this year. To mitigate that risk, we are very pleased to introduce First National’s new Mid-Range Hedge Program for insured mortgages. With it, you can lock in a rate of interest on your 5- or 10-year CMHC insured loans up to nine months before funding and even in incremental loan tranches.
To my knowledge, Mid-Range Hedge is the first of its kind in the Canadian commercial property financing market. It’s also a great complement to our ongoing and always popular Early Rate Lock Program which mitigates risk up to 90 days before funding. I urge you to speak to your First National advisor to learn more about these important risk-management tools and the value of hedging early for exit term loans on new construction or for upcoming mortgage maturities.
To summarize, we are very pleased to provide growing financial support to the market during this volatile period. We stand ready to do more. Please contact me or your empowered First National advisor if we can help.