Earlier this week, First National reported its results for the second quarter of 2024, a period of extraordinary growth in commercial mortgage volumes.
Beginning with recent results, our commercial mortgage originations reached $5 billion, 37% above last year and a new record for Q2. This comes on the heels of a strong first quarter and reflects fundings associated with successful submissions made to CMHC last year for multi-unit property mortgages (construction and term) as well as new business generated this year. Notably, we experienced good volumes in all apartment markets across Canada.
With this increase and strong mortgage renewals, First National bolstered its position as Canada’s largest lender serving the multi-unit property market with commercial mortgages under administration now standing at a record $53.3 billion, 16% above June 30, 2023.
An upgraded outlook
Based on sustained demand for commercial mortgages, we have upgraded our outlook for the last half of the year. Part of this upgrade is based on a surge of client applications we submitted to CMHC prior to program changes and underwriting refinements the housing agency announced in June.
Many of these submissions aimed to qualify projects under MLI Select’s energy efficiency points system. While energy efficiency remains a CMHC goal for this program, the new scoring regimen is reoriented to encourage the construction and preservation of affordable units.
Other changes, including one that comes into force September 3rd (and explained below) are worth noting and your First National advisor is well positioned to describe them. Ending equity takeout restrictions on refinancings, construction loan underwriting improvements and an amortization extension for new construction are among revisions that we think are helpful.
The value of ancillary products as you prepare
First National offers the market’s most effective interest rate hedging and bridge loan financing programs. We call these ancillary products, and they can be useful to you as you prepare for permanent financing arrangements. Interest rate hedging provides the opportunity to lock-in rates opportunistically to save money and achieve peace of mind. First National’s bridge financing options can accelerate your plans – an advantage that is particularly relevant now as CMHC works through its application backlog over the course of the next several months.
More CMHC changes to come
If you have used what’s known as Lender Correspondents in past to submit your MLI Select applications to CMHC, this will no longer be possible starting September 3rd. This change is intended to reinforce the responsibilities and accountabilities of CMHC Approved Lenders, including First National. Please speak to us about the implications.
To its credit, CMHC continues to engage productively in support of the market. For our part, we are taking the opportunity to dialogue with policymakers on changes and refinements we believe would be helpful. In particular, the recent focus of our advocacy efforts has centered on programs that support construction of retirement homes (including enhancing take-out financing options) and student residence financing. We thank CMHC for considering our views.
Market moves and movers
This has been a particularly active period for monetary policy with the Bank of Canada reducing its overnight rate twice in the past two months. These are helpful moves with broad implications for Canadian consumers and users of rental housing. Hopefully there will be more to come.
The impetus for these policy changes is a welcome decline in inflation including the pace of cost increases for new construction. On the other side of the equation is rental rate inflation. In the recent past, we have seen substantial increases in all markets and in fact this was noted by the Bank of Canada in its interest-rate announcement last week. To quote: “Price pressures in some parts of the economy – notably shelter and some other services – are holding inflation up.” It’s not possible to predict the sustainability of rental rate growth and anecdotally, we have been told by some clients in the GTA and GVA that we may be testing the upward limits. While there are regional differences, developers generally are questioning whether rental-rate growth in future will be sufficient to support additional supply.
With a new direction for monetary policy, we are also starting to see another welcome sign: the reemergence of more active buying and selling in the multi-unit property industry. While it’s early in the cycle, this has positive implications that extend right through to the new construction market as price discovery becomes easier as trades become more frequent. As I’ve noted before, the market has shifted such that private interests have overtaken institutions as market movers.
Credit where it’s due
We are grateful to have the opportunity to support your growth and business plans using our Better Lending approach. To ensure we remain well positioned to do so in what we expect to be another busy period this fall, we have steadily added experienced underwriters to our dedicated teams across the country. This allows us to dig deeper and faster to develop and execute financing strategies designed to achieve your goals.
To summarize, our long-term outlook for all forms of multi-unit rental housing is bullish and I think that sentiment is widely shared. As always, there will be challenges and opportunities on the way to a bright future and we stand ready to meet both. Thank you for choosing First National as your lender.