Lakepoint secures $16.2 million of CMHC-insured construction financing at prime minus 25 basis points

Location: Okanagan

CMHC program: MLI Select (100 points)

Loan size: $16,217,568

Amortization: 50 years

LTC: 80.2%

CMHC LTV: 87.9%

Lender: Non-bank lender

Project: Purpose-built rental with a commercial unit

Primary goals achieved: Additional leverage, Lower costs

A commercial realtor introduced us to the owner of a professional practice in the Okanagan who was developing a purpose-built rental building. He had acquired the site with approved building plans already attached, which took time out of the front end of the project. His own practice would occupy a commercial unit in the finished building, replacing premises it had rented for years, and the apartments above would be held as long-term rental.

He had assembled a substantial property portfolio over the previous decade, though he had not taken a project of this kind through construction before. That is a question every lender asks, and it is one we addressed directly in the underwriting package rather than leaving it to be raised: strong liquidity relative to the size of the loan, an experienced construction manager already under contract, and a quantity surveyor engaged to review the budget and serve as project monitor.

MLI Select rewards projects on affordability, energy efficiency and accessibility, and the more points a project scores, the more generous the terms CMHC will insure. This one scored the full 100 points. Full points unlock the highest leverage and the longest amortization the program allows, and getting there took careful work on the application.

We prepared the package, took it to the lenders active in CMHC construction financing, and brought back two offers. On the surface they looked similar. The differences were in the pricing and the structure, and they were substantial.

Lower costs: the offer our client accepted prices the construction loan at prime minus 25 basis points. The competing offer was prime plus 100 basis points. That is a gap of 125 basis points on a facility of just over $16 million, drawn progressively across a construction period of up to twenty months, and it is the single largest piece of value delivered on this engagement.

Additional leverage: the total facility was $16,217,568, which includes the CMHC application fee and the mortgage insurance premium rather than requiring them to be funded separately out of the client's own equity. It converts on completion into a CMHC-insured term loan of five or ten years, amortized over fifty years. The competing offer was a twenty-four month demand construction mortgage with no term takeout, extendable only at that lender's discretion and on payment of an extension fee. Our client would have had to arrange permanent financing all over again at whatever rates existed by then. Instead he has one facility that carries him from the first shovel through to stabilized long-term debt.

Because the site sits on a transit corridor, the zoning required no residential parking, which took a meaningful cost out of the build and is a large part of why the project worked on a small site.

If you are considering a purpose-built rental project and want to know what MLI Select would actually deliver for it, start with a 15-minute call. We will tell you what the program is likely to score, what that means for leverage and amortization, and what the lenders active in this space are pricing at today.