Key Impacts of CMHC Policy Changes on Apartment Lending (Effective November 15, 2024)

Key Impacts of CMHC Policy Changes on Apartment Lending (Effective November 15, 2024)

1. Appraisals

• All multi-unit loan applications now require appraisals, regardless of size.
• Reports must meet industry standards, include three valuation methods, and be dated within 12 months of submission.

2. Qualifying Interest Rates

• For loans with terms of 10+ years, CMHC will apply the higher of the market or contract interest rate.
• This mirrors the approach for 5-year terms and may make shorter terms (e.g., 5 years) more appealing for borrowers due to better debt-service ratios (DSCR).
• Increased demand for 5-year terms may lead to tighter spreads and fewer allocation options.

3. Environmental Site Contamination

• CMHC now accepts construction financing applications for sites with contamination.
• The first funding release requires proof that the site is contamination-free, supported by updated environmental reports.

4. Accessibility Criteria

• Accessibility standards for MLI Select have been updated to align with current guidelines (e.g., CSA B651:23, Rick Hansen Foundation Accessibility Certification 4.0).

5. Bonding and Alternatives to Bonding

• CMHC typically requires bonding or acceptable alternatives (e.g., letters of credit, collateral security) as a safeguard for construction risks.
• For smaller projects (up to 24 units), bonding may be waived if the borrower demonstrates strong financial standing and creditworthy contractors.

6. Rental Achievement Holdbacks

• CMHC is reinstating rental achievement holdbacks for MLI Select Construction Financing.
• Projects requiring more than 75% loan-to-cost (LTC) or loan-to-value (LTV) will be subject to holdbacks, reducing upfront leverage and potentially increasing equity demands.
• Retirement homes have stricter thresholds (70%).

7. Commitment to Insure (COI)

• Borrowers must stick with the lender specified in the COI. Transfers between lenders will require CMHC approval and are allowed only in exceptional cases.
• This change limits pricing flexibility, making lender selection at the outset more critical.

8. Lender Designations

• Approved Lenders and Lender Correspondents must choose a single designation, eliminating dual roles.
• This aims to enhance compliance and transparency for borrowers.

9. Apartment Construction Loan Program (ACLP)

• The program now uses a scoring system like MLI Select, emphasizing affordability, energy efficiency, accessibility, and social outcomes.
• New criteria favor high-need markets (e.g., Toronto, Vancouver) and include provisions for student and retirement housing.

Summary of Impacts

These changes introduce tighter regulations, potentially limiting flexibility and increasing upfront costs for developers. However, they also aim to enhance market transparency, safeguard construction risks, and focus on affordability and social outcomes. 

We hope you find this update informative and if we can ever assist with your investment real estate needs we welcome the opportunity to talk commercial real estate!

Article By: Patrick Hulley, Broker of Record – President
RE/MAX RISE Executives, Brokerage – Commercial Division