Apartment Renewal and Acquisition Financing

Steve Merritt, Citifund
December 2008

The mortgage market has been a very interesting playing field lately. Lender spreads are up, and capital for real estate lending has been restricted for many reasons including some lenders literally closing their doors.

While much of the recent news has been negative, the mortgage market is still producing competitive loans for apartment owners who are organized and take the time to broker their acquisition and renewal financing. A select few lenders are quoting CMHC insured 5 year apartment loans currently (Dec 1, 2008) at under 4%. At the same time, there are lenders in the market reportedly renewing CMHC apartment loans at 5.3% for a 5 year term. It clearly pays to know the mortgage market prior to committing to a renewal/acquisition rate with a current 1.3% spread between various lenders in the market. A mortgage broker should have access to many lenders in the market and should be able to find a competitive interest rate for your renewal or acquisition. Take the time to review your mortgage renewal dates on your portfolio so that your mortgage broker will have sufficient time to source and arrange the best renewal terms for you.

With the CMHC apartment financing recently coming in below 4% for a 5-year term, and the cap rates reportedly moving up, it is good news for buyers who want to expand their portfolio with the potential of current mortgage rates being lower than the cap rate. If you are planning on taking advantage of increasing your portfolio in the New Year, be aware of your various mortgage renewal dates on buildings that you currently own. Further levering a building at renewal is a good way to obtain the equity required for new purchases without having to incur expenses such as prepayment penalties.

Early in the New Year will be a good time to consider refinancing or acquisition financing. Many lenders have fresh allocations of funds to lend in January, which provides new capital supply to the real estate lending market. Please feel free to contact me on the above or for any other questions pertaining to lending, renewals or acquisition financing.

Happy Holidays!

Steve Merritt, Principal

Citifund (Merritt) Capital Ltd.
Suite 700 – 1111 W. Hastings St.
Vancouver, B.C. V6E-2J3