We recently reported First National’s first quarter results. In keeping with my pledge to update you on activity levels, I am pleased to report that our commercial production was up 18% in the quarter to $3.6 billion, reflecting strong demand for insured multi-unit mortgages – both construction and term. With that performance, our total commercial book also climbed 18% over the past 12 months to almost $60 billion.
These numbers demonstrate a high degree of market resilience, showcasing that many borrowers across Canada continued to move ahead. While we’re pleased to support this activity, grateful for the opportunity to do so, and delighted to note that our mortgage commitment pipeline indicates a busy summer of funding ahead, there is no denying that the market outlook has turned from positive to uncertain and unsettled.
Cross-border tariffs are giving rise to fears of job losses. Bond markets, the driver of commercial mortgage rates, have reacted violently to the abrupt end of free trade. Market fundamentals of occupancy and rental rates are under pressure, most pronounced for new product. And if that was not enough:
- Equity participation in new development projects has dried up, causing knock-on effects to land values, which in many cases are levered and may require equity for repayments.
- Based on market fundamentals, CMHC is applying a more cautious approach in its underwriting of new developments, with reductions in accepted loan-to-cost ratios during construction and in some cases the imposition of bonding.
After a 20-year bull market in commercial real estate, I believe we are now moving into a period that will demand the application of good real estate investing principles: where quality, location and management expertise will produce the best returns. In light of headwinds and the broader change in the real estate investment environment, I offer three recommendations that, when taken together, will provide you with greater certainty and clarity.
#1: Stay current on lending and property trends by leveraging First National’s extensive reach
In the past five years alone, we have underwritten financings valued at more than $50 billion across every major and most secondary markets in Canada. We’ve also invested countless hours collaborating with developer clients, engaging with the National Housing Agency and participating in bond markets. That work continues every day. In uncertain times like these, knowing what’s happening beyond surface-level reports can make a world of difference to your plans and go/no go decisions. Those unique perspectives are available to you through our advisors.
#2: Concentrate on the fundamentals and leave the financing strategies to us
As rental markets change, and supply chain dynamics for new builds react to tariff impacts, running a successful property business is more than a full-time job. With First National as your partner, you are free to concentrate on your business fundamentals and trust that as capital structure experts, we will take care of every detail involved in arranging the very best financing for you. That includes navigating CMHC’s programs and approval process and delivering secondary financing as necessary.
#3: Take advantage of longer terms and interest rate hedging
While coupons currently favour 5-year mortgages over 10, taking a longer term pushes off the risk that government incentives become far less attractive or are more difficult to secure in future. Pushing interest rate risk off for 10 years is also appealing since it is entirely possible that today’s cross-border tariffs lead to higher inflation during the four-year term of the current U.S. Administration. Since rental apartments are long-term cash flowing assets, I strongly believe 10-year terms deserve serious consideration if you want certainty and predictability.
Similarly, the desire for certainty can also be satisfied with an interest rate hedging strategy. While the rate environment is currently range bound with bond yields around 3% (plus or minus), intraday shifts can provide opportunity. The best way to capture it is First National’s Early Rate Lock program, even on construction-to-term deals with other lenders that are scheduled to complete later in 2025 or early in 2026.
Better Lending just got better
As a growing team whose core value is to aim higher, we continue to challenge ourselves to offer more and better solutions. To that end, we are now offering a brokerage service to connect industrial, office and retail property owners with competitive conventional mortgages.
This service is distinct from our business of insured and conventional lending on multi-unit properties, which will proudly remain our primary calling. But we believe there is a need for financing in other key parts of the commercial property market and that First National’s extensive capital market connections make us uniquely positioned to address it. To learn more, please contact your First National advisor.
In other news, to underscore the important role servicing plays in the lifecycle of commercial mortgages in the context of our highly regulated Canadian financial system, I’m proud to introduce our Commercial Asset Management team. Led by Lena Teixeira who joined us five years ago with 35 years of experience working for some of Canada’s leading financial institutions, Commercial Asset Management is more than a new name for servicing – it’s a symbol of our commitment to Better Lending in all its forms.
Looking ahead
With a new federal government now in place, rest assured that First National will continue to advocate strongly for the continuation – and expansion – of programs that support the multi-unit residential property market.
Most especially, you can count on us to advocate for you as your Better Lending partner.