5% down 50y amortization and limited recourse!?

Question

What do you all think and know about this new CMHC product? I invest in Alberta and it looks like the maximum affordability level would be extremely easy to meet and give enough points for 5% down 50 years amortization and limited recourse. https://www.cmhc-schl.gc.ca/.../multi-unit.../mliselect...

Michael McKinders · Answer

Hi all,

The actual phrase is 80% of units at 30% of median renter income.  The last chart the CMHC released is 2019 so the data needs to be updated but for Edmonton this amount is $66,600 and Calgary is $69,500.  Other cities are way lower than this.  When you take 30% of this amount Anthony is essentially correct with the amount.  Edmonton is $1,665 and Calgary is $1,737.  They hosted a call just before Christmas and did not give much additional information other than saying that the Edmonton and Calgary markets may be oversaturated which I don't see at all.  Both cities need more affordable housing.

More details will be released closer to the date at which the product is released in March.

In my opinion this product really does benefit new developments the most as it provides higher LTV amounts on both the construction product and stabilized asset product.  I have ran a variety of models based on conventional financing and this CMHC MLI select product and the benefits to the developer on take out financing and monthly cashflow are staggering.

As I here more information on the product from people I know I will post accordingly.

Brent Alston · Answer

I talked with a senior rep at CMHC yesterday and he said the program is as it is posted in the link that Anthony posted.  Incredibly easy to qualify on purchase/refinance in many Canadian markets.

Brent Alston · Answer

I don't think it is finalized.  They emailed me a Housing Solutions Table with an overview of all their programs.  Under MLI Select it said

Purchase/refinanceOPTION A: 80% of units: maximum rent is ator below 30th percentile of rents (CMHC in thesubject market) for units of similar type (numberof bedrooms)OROPTION B: Project approved under otherhousing programs/initiatives (municipal, provincialor federal) that provide support for developmentof affordable housing such as capital grants,municipal concessions or expedited planningOROPTION C: Social housing projects with upto 5 years remaining on operating agreement:additional criteria apply

Note: For all options, the affordability of designatedunits must be maintained for a minimum of 10 years.Affordable units are subject to provincially allowableannual rent increase or CPI.

Pretty vague description and doesn't speak to the point system so i'm waiting to hear back for clarification.  I'm expecting if you want 50 points, 40% of units will need to be at the 30% percentile rent, 70 points = 60% of units at 30th percentile, 100 points = 80% of units at 30th percentile.  Too easy to qualify based off 30% of median renter income

Jeremy Heaman · Answer

Thank you @Anthony Therrien-Bernard for brining this up. I haven't heard about it yet.

I am concerned about the 5 percent possible down-payment. It would make purchasing multifamily easier, but that barrier of entry is also used to encourage best practices for investors running their business. Lowering the bar that much could lead to lower quality property management for would be tenants. It could also lead to increasing price of multifamily buildings, due to effectively increasing the money supply, if the rent amount do not change as well.

It will be very interesting to see all the criteria needed to be achieved before this come into effect.

Brent Alston · Answer

Hi Anthony, I thought the same thing when i was reading about this program and contacted CMHC who sent me different information so I think this is an error on their website.  For purchase/refinance to meet the affordability requirements 80% of units need to be at or below 30% percentile of market rents. So ex in Calgary Beltline the 1 bed affordability requirement is $950/month.

Jeremy Heaman · Answer

@Michael Mckinders that's is good to know, the application fee doesn't seem very large but that is likely the point after all.

Michael McKinders · Answer

There are qualifications required to participate in this program.  Some of which may alleviate the issues that Jeremy brought up earlier.  It am not sure that everything has yet to be determined.  There is also an application fee, I believe to be $150/door required to even apply to this program.  Historically speaking CMHC loans have taken a very long time for the analysts to crunch their numbers and approve the loans but we are being told that this process may be quicker with the select flex program but we will see.  We are still planning on using ST bridge financing from lenders who want CMHC business for the assets we plan on using this financing for.

Using just the average income numbers posted before almost every 1 bedroom would qualify these buildings for this financing, so I expect that it becomes a lot more in depth, such as % of units of each type below a certain threshold, but that is just my speculation.

Again, when I get an update I from my source I will let post it accordingly.

Anthony Therrien-Bernard · Answer

That's interesting, it sounds like CMHC themselves are getting different answers on this. If the rep you talked to is right I think multi-family in Alberta is about to become in extremely high demand. I have solely invested in residential suited properties until now but I am trying to prepare for a shift to larger multi-family when that program launches.

5% down 50y amortization and limited recourse!?

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