(59) CMHC Financing for Small Mid-Rise Projects - Abtin Nikeghbali - Canada ICI

CMHC MLI Select may offer compelling financing terms for purpose-built rental development—but “up to 95% loan-to-cost” does not mean every project will receive 95%, or that a developer needs only 5% cash.

In this episode, Payam Noursalehi speaks with Abtin Nikeghbali of Canada ICI about what lenders and CMHC examine when evaluating a small Toronto mid-rise or multi-unit rental project.

The conversation covers:

• Net-worth and liquidity expectations
• Construction and property-management experience
• How lenders assess rents, vacancy and operating assumptions
• The difference between maximum leverage and actual proceeds
• Why owners must front construction costs before receiving draws
• Builder contracts, bonding and third-party management
• CMHC construction financing versus completion takeout
• When a developer should begin the financing process
• How Major Streets and EHON projects may fit into the rental-financing landscape

The rates, timelines and program interpretations discussed reflect the conversation at the time of recording. CMHC policies and financing terms can change. Obtain current advice from qualified lending, legal, accounting, appraisal and construction professionals before making a project decision.

#RealEstateDevelopment #CMHC #PurposeBuiltRental #DevelopmentFinancing #TorontoRealEstate

For more information, please refer to RealEstateDevelopmentInsights.com

Take our Free Assessment at: DevelopmentReadinessAssessment.com

Transcript

Payam 0:00

Hey, Abtin. Welcome to the show. How are you doing today?

Abtin Nikeghbali 0:03

Payam, good. It's a pleasure to be on. Finally, moving from viewer to speaker.

Payam 0:08

Yeah, that's a good transition. I'm happy to have you here. We've been in touch through this podcast. We got connected a couple years ago. you for being here. Can you please introduce yourself to our audience? What do you do? Who do you represent? And, we'll go from there

Abtin Nikeghbali 0:22

Yeah. My name's, my name's Apton. I'm a director at Canada ICI Capital Corporation. at Canada ICI, we're a CMHC-approved len-lender. and we also are a lender on, on conventional assets as well too, strictly commercial and five-plus units residential. and yeah, I would say about 70% to 80% of our business is CMHC, and the remaining of that is, is conventional business, whether that's conventional construction, term refinances on plazas, land, all other basically ICI investments, ICI asset classes.

Payam 0:50

So you and I have been obviously working offline and, we have a couple of projects, and I'm, I've been trying to make this episode as practical as possible. And the reason for this episode is because I do see a very interesting window of opportunity opening up in the next 12 to 24 months probably, maybe even sooner, hopefully, in Toronto. And that has to do with the, these smaller mid-rise projects that are now step by step, day by day, they're becoming very slowly more viable. And I think at some point in the, hopefully in the near future, we're gonna hit that point where these projects are gonna start making real sense, and hopefully we will see way more of them on these streets. And I'm-- in particular, I'm talking about the projects that are, have been en-enabled by the Major Street Initiative and EHON initiative in City of Toronto, which for those of our listeners who are not familiar with it, it basically says you could go all the way up to six stories and potentially 60 units on some of the, on, on thousands of parcels in the City of Toronto, right? So what I'm wanna kinda do with you, Optin, in this pr- episode is I wanna kinda do a little bit of a role play. And I think it, as, as much as we can, we wanna make it practical. And the idea is I'm a new investor/developer, and I have very limited experience in having done this type of project. And maybe I've done a custom house, maybe I'm, I've done, multiplexes or something, but now I wanna up my game and I wanna go and start doing these small mid-rises, call them, apartment buildings, purpose-built rentals, and I really wanna try and leverage and use CMHC financing, MLI Select program in particular. And I'm coming to you and trying to get your help and expertise to make one of these projects reality. Are you okay with that?

Abtin Nikeghbali 2:41

Let's do it

Payam 2:43

Fantastic. Okay, so let's start with that premise. I'm looking at a parcel in City of Toronto. say it's a 50 or 60 foot lot, and it's location on one of these... the location is one of, on one of the major streets in City of Toronto. coming to you and let- let's-- let me ask you this way. What are the first five things that you would ask me about the project before even deciding it's worth pursuing CMHC MLI Select or not?

Abtin Nikeghbali 3:13

Yeah, for sure. I mean, I would actually reduce, the question count to four 'cause I think there's four pillars to any successful, CMHC deal or any even a financing deal to begin with. and then it's actually five pillars, but the fifth pillar is us, as those who are presenting the deal. But the first one is net worth. Okay, what's our net worth position? do we meet the CMHC requirement for net worth, which is twenty-five percent? and is that net worth in Canada, of course. the second pillar would be liquidity. are we meeting the liquidity requirement needed for a project of this type? and then that basically the liquidity question, the rule of thumb has been ten percent. It's kind of been the unspoken rule ac-across the lending community, with different credit groups. But again, that number could vary just depending on how much equity is in the project or how much equity needs to go into the project. But again, that ten percent liquidity kind of buffer outside of the equity needed for the project has been quite consistent, especially in today's market, where I could say, you know, liquidity's kind of become the number one talking point, uh, when looking at a new project. So that'll be pillar number two. Moving to pillar number three would be construction experience. So, you know, coming from cus- a custom home background, let's just say it's your, your main line of business and you've built twenty, thirty custom homes, we could see that transition from, you know, a four pl-- going to a four plus one. you know, that is feasible and, and you know, the build, the build is comparable to what you've built in the past. But to go from custom homes all the way to a six-story mid-rise, that's where it's a bit of a jump. Um, so that's again, one of the things that we're asking, what's your construction experience? Have you built anything similar to what you're planning on building? and then that kinda guarantees the direction we go in, where it's, hey, are you hiring now a builder, for example, who's, who has the experience, who's built numerous six-story buildings? or if they don't have construction experience, then are you hiring someone who has the experience building these smaller multiplexes? Um, and then the fourth pillar is, is property management experience. how are you gonna manage this property once it's complete? are you using a third party? Will you be self-managing it? What's your experience and whatnot?

Payam 5:11

Okay, perfect. So that gives me, us, that gives us a 10,000 feet view of the process. But now, if it's okay with you, let's start diving in. I wanna kinda drill in and get some detailed answers from you because as I'm sure you would agree that the devil is in details and a l- a lot of these things might look very good

Abtin Nikeghbali 5:29

That's, that, that's where point number-- That's where the fifth pillar comes in, right? where we present and how we... I would say the fifth pillar is how a deal's presented, right? it all depends. there's different stakeholders throughout the process, the C meet C, the lenders, the credit teams, and whatnot that are sitting on different parts of the country, right? And it really needs to be presented to them cr- clearly in order for a deal to go forward. So I would say the fifth pillar in any successful deal is how the deal's presented as well too

Payam 5:53

Okay. So, so I'm just gonna do a quick recap here. So pillar one, net worth. Pillar two, liquidity. Pillar three, construction experience. Pillar four, property management. And pillar five is basically putting all of that together and making sure that it actually makes sense, making the business case, if you may, right? Am I right? Like I know, way back when I used to briefly work in the investment industry, we used to build investment cases for new projects. Is that the same idea?

Abtin Nikeghbali 6:24

Yeah, v-very similar

Payam 6:25

Gotcha. Okay. let's go... Is there anything-- So, sorry, before I start digging into this, is there anything about the actual site that you would look at and say, "Listen, like that one particular f- reason, for whatever reason, that one particular site or street or corner or area, don't touch it. CMHC just doesn't like it. You can't work it." Is there something like that can come to your mind?

Abtin Nikeghbali 6:47

Yeah, we haven't had anything, especially if we're speaking to Toronto, we haven't had anything of that nature where there's a specific corner or location where they just don't wanna, the CMHC doesn't wanna get involved. I would say you, you may run into something when you're looking at the tertiary markets or some of the se-secondary markets that have been, slightly overbuilt over the past few years. and you know, there's just, the vacancy rates are much higher, so they're gonna underwrite, a little bit more stringently on those. But again, we're in a bit of a hou-housing crisis, specifically in Toronto. Affordability's been a concern, supply's been a concern. So, up until now we haven't really seen anything, from our experience where they're saying, "Hey, we wanna shy away from this in Toronto," unless, you know, we are pushing the envelope on something such as rents, anything when it comes to the feasibility of the project. So I would say yeah, point number five is deal presentation, but also making sure that we're looking at the location. Is it near transit? Um, we're looking at the rents. Does this, does this fall in line with CMHC's kind of,

Payam 7:39

It

Abtin Nikeghbali 7:39

goal, right?

Payam 7:40

what you're saying is that make sure it actually makes sense. You don't wanna go and build units in a sub-market that already has hundreds of units sitting on a market and not renting. that's basically what you're saying, right?

Abtin Nikeghbali 7:50

Correct. Yeah

Payam 7:52

Gotcha. Okay. So, so let's move forward, and I wanna kind of start digging into this topic of how much can I actually borrow? Because you hear the head- or read the headlines or hear the rumors on the street, you can get 95% of something, nine- 90% of something funded by CMHC. Walk us through those numbers. What is the 95% actually referring to? How realistic is it? What is the actual things that you're seeing happening that prevents people from getting those numbers?

Abtin Nikeghbali 8:24

100%. I mean, 95% loan-to-cost or loan-to-value, those are the two, you would say you're able to le- uh, borrow up to 95% loan-to-cost of sticking to construction on this one. again, it's a metric, but again, CMHC and, and credit teams like ourselves are gonna take a look at the underwriting, and we're gonna make adjustments where we see best fit. and the same goes with the CMHC. So for example, one, one of the changes that we've seen the CMHC make in their underwriting is that, you know, typically approved lenders were pulling their vacancy data from the CMHC portal that would show you exact vacancy rates for the specific zone, neighborhood, in some cases, the census tract. And we'd look at, you know, the most recent, the data's released in October. We'd look at the most recent October data, and then we'd also look at the trailing four-year average, whichever one was higher, that would typically be the vacancy rate that was applied to the application. However, there's strong data that CMHC has, that CMHC has that shows, you know, new built buildings after the year 2000 have a 5% vacancy, right? So an adjustment on your vacancy right there could drop you from the 95% down to 91, for example, right? Or 92 or 93. So is 95% a myth? Nope. is every single project gonna come in at 95%? No. Um, so we, we've seen a ton of projects at 90%, 85%. We've even seen projects at 75%. It really just depends on how the underwriting looks, what the land cost was at the time, uh, when it was acquired, and, um, yeah, again, which underwriting metrics get pushed and whatnot. And I think with, it's really with just going through the motions, right? I mean, if, if you think that your property taxes are gonna be half of what everyone else's is, then you're already underwriting the wrong project or underwriting the incorrect way, and you're gonna get a surprise when you get your certificate of insurance back to you.

Payam 10:05

That's true. and I guess at the end of the day, goes back to ma- making sure that your numbers make sense. And un- if you're underwriting or writing a pro forma for one project, the evaluators and appraisers and lenders and analysts on the other side of the table are looking at hundreds of them, and it's really har- not that hard to spot one project that has the numbers off the charts and not working, so be careful about that, please. and just to be clear, at 90%, 95% or whatever the percentage you end up getting, that's loan to cost including construction cost, soft cost, land cost, and/or development charges if there's any, correct?

Abtin Nikeghbali 10:41

Correct. Yeah

Payam 10:42

I end up try- try, spending 10,000, 10 million bucks on an entire project, I'll get 95% of that, not just construction or not just land value.

Abtin Nikeghbali 10:52

Correct. it's the full budget

Payam 10:53

Right. and I think one of the benefits that we know a lot of people are really interested in this program is because you also lock in your takeout financing, at the time that this COI comes in. Maybe walk us through that, elaborate a little bit on that and why is that beneficial?

Abtin Nikeghbali 11:11

Yeah, I mean, the CMHC program's been, been ever-changing. I mean, there's always changes coming out every few months and, when the program first came out in twenty twenty-two, we had the scoring system where you could basically score a hundred points via energy efficiency. And what that meant was someone could build a fully energy-efficient building and get a fifty-year amortization. again, fast-forward to July, June nineteenth, twenty twenty-four, they made the change where now energy efficiency can only be cap-- can only get fifty points. That's the maximum, that you can get through energy efficiency. Fifty points translates into a forty-year amortization. So, the differences with those who got their certificates of insurance between twenty twenty-two to June nineteenth, twenty twenty-four is that they locked in that fifty-year amortization for once- when they complete their construction. Those who submitted after June nineteenth, twenty twenty-four are now looking at a forty-year amortization. They could look for a fifty-year amortization should they, should they, incorporate affordability. So now to be able to get a fifty-year amortization under the MLI Select program, you do have to incorporate affordability, into the project. Yeah.

Payam 12:11

I think, if I wanna summarize my observation of the, C-CMHC program for the past few years, it has been trying to push the applicants toward better projects. And by better, I mean a mix of energy efficiency, affordability, and accessibility. So the more-- the better the product is and the more in line that product is and the project is with those three criterias, the better terms you're getting. And it's, it's-- it seems to me, and please, Payam, please correct me if I'm wrong, but it seems to me that at one point, maybe they were not, the requirements were not that stringent. The number of projects that were getting-- the applications that were getting in, probably not getting funded were too many. And CMHC is trying to maybe reduce them to those to actually make sense. Is that correct observation or am I

Abtin Nikeghbali 13:00

Yeah, it's a good obs-observation. We actually looked at the data in terms of how much purpose-built rental was being built around the country. so in 2010, the figures were about twenty thousand units per year. up until 2015, it stayed under forty thousand. since 2023, we've started at eighty-one thousand. Up until 2025, we're at a hundred and twenty-two thousand. so that just tells you how much more, I guess you would say business or how much more insurance basically the CMHC is taking on. and they really wanna fulfill their mandate, right? Which is to bring energy-efficient housing, affordable housing, accessible housing to the market and bring more of that

Payam 14:04

is their tool, and this is how they do it. This is how they push us toward it. And obviously, the change in the market conditions with the condos obviously pushes that trend even that much higher. Okay, so let's go back to the pillars that we were just talking about. Net worth and, let's start with net worth. What-- how do you or how does a lender or how does a CMHC look at net worth? What is... what are the top five or six or, I don't know, 10 items that you or someone would put in their net worth, to meet that requirement?

Abtin Nikeghbali 14:35

Yeah, we, I mean, I'll just really go through a net worth form for someone, but, I guess the Canada ICI template and, the fir-first section we have is cash and savings. So, how much money is in your checking account, savings account, any of the accounts that are related to this specific project, for example, the holdco or any of the other, or the LP account, for example. So we'll look at that. We'll also look at the marketable securities. Are there any stocks, GICs or any other, anything else, that's owned? So those would be kind of put towards the liquid assets bucket. we would look at accounts receivables, accounts payables, any other loans that they may have outstanding as well too. This goes as far as car loans, credit card loans, line of credits. then moving down, we would also look at business holdings and if there's any other investments, on that end. And then moving down, we'd look at, their real estate holdings. What assets do you own? What's the value today? Can that value be substantiated by a property, by a property tax statement, appraisal, APS, or an APS, and then subtract that from the mortgage amount at the time, and that's effectively your equity corresponding to how much your ownership is into that property. and then that basically gets us to our net worth figure, right? When we sum everything up and subtract all the liabilities. and then in terms of what really gets counted towards the net worth and what isn't, I mean, investments in private companies, the CMHC set that to zero, on their end when they calculate what the net worth is. So if you've invested in a startup that's a private company, they'll set that investment to zero. So it doesn't count towards your net worth. Or if there's any, precious metals or jewelry that you own, those are set to zero. So the watches, the Rolexes, the rings, set to zero. The same with vehicles and whatnot. so I would say the really important lines or the really important sections of a net worth statement would really be the cash and savings section and the marketable securities. So stocks, GICs, and whatnot. and then of course the real estate

Payam 16:22

and I guess you, you kind of answered part of this question, but what are the surprises that you've seen people, encounter when they're going through this exercise and come back and see, "Oh, I thought I was worth this much, but now apparently I'm worth half of it," or something like that? is it because of the appraisals on land values or, like, what else could be there?

Abtin Nikeghbali 16:42

Yeah. I mean, there's a lot of people who still think their property's worth what it was worth in 2021, 2022, right? or in certain markets you've seen values almost be cut in half and, this goes as far as, some individuals' principal residences. and then when you get an appraisal done or if you check, if you just do, you check the assessed values, which are typically lower than what the actual market value is. But again, you get an appraisal done, you notice, oh man, it's 75% of the value that we previously looked at. On land it's been quite, quite the drop in values, of course, as you may know, with where the development market's at, where the condo market's at. But those have been the big surprises and to bring it onto the positive side, some clients are richer than they actually think, when they actually dive into their statements, dive into the account summaries and realize there's a GIC or a stock portfolio that they totally forgot about and had great growth, especially with the kind of this bull run we've had recently.

Payam 17:28

Yeah.

Abtin Nikeghbali 17:29

Yeah.

Payam 17:29

a very good problem to have, to find, maybe a lottery ticket in your pants that you forgot about. That would be also even better. Okay, so with that, let's switch gears. We go forward. you-- we touched briefly on the question of experience. That was the other pillar in the discussion. We've talked about net worth. I'm gonna circle back to liquidity, later. But I want, I wanna kind of dive in into the experience part of it, and quite frankly, because there are not that many people and not that many developers, especially on the smaller side, who have worked on these scales of projects. What is your take on that? Like, are you seeing like a... First of all, have you seen any of these application go through yet? do you anticipate-- how do you anticipate CMHC or the London community would generally approach this?

Abtin Nikeghbali 18:18

Yeah, I would say, you know, we, we started financing, Ca-Canada ICI as a whole. Our business has, has always revolved around some of the larger stuff, the mid-rise buildings, the high-rise buildings and, and the larger subdivision style, projects. in twenty twenty-three, our team financed its first multiplex. it was a project out in the Ossington area. It was a four-plus-one. This was the time when you would have to basically get the permit for the four units, then close the f-- the permit, then get the permit for the garden suite. So what we were doing on those files were CMHC takeouts 'cause they were coming to us with a completed building. these were custom home builders that were coming and doing this. So right there you're showing the CMHC on a CMHC takeout that, hey, you've already executed on a four-plus-one. Now, when you go back to them, I guess fast-forward to I think it was June twenty twenty-five where they started, uh, the city started to offer all permits up front. fast-forward when you're able to do so to go through the CMHC without, you're able to get financing through the CMHC for these multiplexes, they're more than happy to do that business. so that's, that's one of the angles that we've had success. But a lot of the groups stepping into the space now, going into their first multiplex project through the CMHC, um, we've been able to do that for them. But again, it's really substantiating and making sure that it's evident that these groups have the experience to take on such a thing, based on their track record with residential homes. we'll look at, their Tarion history, for example. just when we're doing our credit meetings, we'll look at what they have on the HCRA, see how many completions are registered there. Those are all things that, form a part of the resume, form a part of the story, and that's, that relates back to pillar number five. So it's like, okay, great, you-you've built thirty homes, but if you've also had thirty claims on Tarion, that kinda says something to how, to what you're building, right? And the same goes for it's a concern for credit teams because we're not coming and finan-- we're usually financing the construction 'cause we're planning on financing the term piece as well too. so we're not looking to have issues, two, three, four, five years down the line, into our term loan

Payam 20:10

don't

Abtin Nikeghbali 20:11

where...

Payam 20:11

issues with the actual asset

Abtin Nikeghbali 20:13

Correct. With leaks, anything, right? It's just, it's a drain on the borrowers,

Payam 20:18

So, when I go to the larger one, like a mid-rise project, and, I guess the part of the answer is to bring in parties who have proven track record of doing that. What does that bring in mean in terms of how, what do you need to do? Do they need to come in as a partner? Do they need to come in as a, I don't know, CCDC 5A contract? Like how does, how does one satisfy CMHC with the lending that, yes, okay, I didn't have the proper experience in-house, but somehow I've, checked that box?

Abtin Nikeghbali 20:47

Yeah, I, I would say for the mid-rise projects, I would say, definitely being well above that, that twenty-five percent net worth requirement above that liquidity threshold is key because it's almost, it's almost an investor and builder relationship now. So they really wanna make sure that that individual is well insulated, and then also bringing in a very strong group so there's no, you know, there's, there's no, um, there's no cost overruns, right? Project remains on schedule, on time because again, there's an interest reserve for these projects. They don't want it to go outside of schedule or anything where now you gotta cut up interest out of your pocket. and that whole idea of bringing someone in, it could be in the form of an equity partner. that's always great. or it could be in the form of, you know, signing a CCDC 5B. For example, some of the groups, or 5A of course depending on, on, depending on which institution you're working with. and some other institutions, some of the schedule A's that we've worked with on some of these mid-rise buildings actually want a CCDC 2 in place, so a fixed price contract, with that group. And it's just all about kind of taking the risk off, with a CCDC 2 of course, you know, it's a fixed price contract, right? And then CMHC's new rule recently came on twenty-five units plus where, uh, they're most-- the wording is most likely, but it, it's, they're gonna apply bond, a bonding requirement there, right? So really ensuring that either that GC who's bringing on the project is able to get bonded or the trades that are being used, do have some sort of bonding capacity.

Payam 22:07

Okay, so, so if I'm doing the first time, if it's my first time doing this, it's probably best that I don't go over the 25, 'cause that also obviously is a bigger scale project. Typically, I will need more than one lot to make that happen, it's also higher, liquidity and net worth requirement coming in, and also the bonding. The bonding is easier said than done, having been through the whole bonding process. it's not impossible, it's definitely doable, but making the pro forma work with bondable trades on smaller jobs, it's a feat of its own for anyone who hasn't been through it. okay. So, so we've covered worth, we've covered liquidity. Let's talk about property management, because I think that's one of the things that maybe it's not talked enough about. What are some of the high-level things that someone should consider when thinking about that, Peter?

Abtin Nikeghbali 23:00

Yeah, I mean, it's really about, experience managing properties, managing residential properties, managing the whole process with landlord-tenant board. that, that's the whole, that's the kind of, kind of what I would say whether you're an investor in this, in, into these projects or if you're looking to take one of these on, is really like, "Hey, do I possess enough experience managing properties? Have I been managing a pro-- a portfolio, for example, of, of multi-units, whether that be triplex, quadplexes or whatever it be, across the GTA? Have I been managing this for, for five, ten years, for example? And do I have systems in place now to manage a building with twenty units in it, uh, with twenty tenants in there? Or should I look to, to really bring on a group and sign a property management agreement prior to construction starting, for this building, right?" Um, and again, it, a landlord-tenant relationship is always both ways. I'm not gonna go too deep into it, but, the wrong property manager could make tenant experience horrible, and that could drive rents downwards, and that drives the property's performance downwards and, and next thing you know, the property's in default, right? Um, and that, that always goes with, you know, tenant screening and all those things as well too, because you build a twenty-unit building, you bring in a bunch of tenants that, you know, may cause issues or whatnot, it could ruin the experience for other tenants. And again, those are all things that, that come into play. So the CMHC could actually mandate having third-party property management in place. So you may think that you have the experience, but again, if the CMHC doesn't, doesn't really buy it, they could mandate the third party property management within the certificate of insurance and then prior to the construction advance, prior to the construction loan being advanced, uh, they would require to see that signed property management agreement with the third party. And they would look at their resume, of course, too.

Payam 24:38

I'm beginning to think that it might be treated the same way that, Tarion used to treat condos. Because Tarion, and, basically when we wanted to start condos before, you had to have a property management team, which was a reputable company, actually prepare your first year budget before you even were able to start selling the units because they wanted to have a decent estimate of the running, the cost of running the, this building, the maintenance fees and whole bunch of other details. So that was very defined and well-organized part of that process, which sounds like we might see an equal version of that over here as well. Is that correct?

Abtin Nikeghbali 25:18

Yeah, again, when anything gets popular, I mean, right now the CMHC, we've heard about this data that they're responsible for about eighty-five percent, of rental construction starts, across the board. the process needs to get, they have to implement these things in order for it to be efficient, and also to bring their overall risk downwards, right? So, I would say it's the same way and really just making sure that all parts of this puzzle, which is multifamily development and also multifamily ownership are solved for, and that really brings down the risk level. And then again, for that fifteen percent slug that's not using CMHC, they're usually gonna translate to coming back to the CMHC via CMHC completion takeouts and whatnot.

Payam 25:55

they will do traditional financing just to build the construction bu- and build the building and do the construction financing and then eventually do a takeout. Yeah, why wouldn't you do that? can we briefly touch on the LP GP structure and how that potentially affects these deals? Because the way I'm seeing this and I'm the way I'm envisioning what probably will happen in Toronto in the next few years is that we'll probably see a number of LP GP setups, and that's general partners and limited partners, and maybe someone has a piece of land and he needs to partner they, or he or she need to partner up, or they wanna partner up together and purchase a new property. Is there any red flag that, are there any different requirements when an LP GP s- structure is put if, in front of you versus, simple company that owns a property?

Abtin Nikeghbali 26:43

Yeah, I mean, we've, we've seen all the, all the s- all the structures, LP GP, just a sole owner owning the property and whatnot, especially given that, you know, previously we used to be financing. I mean, still are financing of course, but the major-- previously the majority of our business was all larger loans, so LP GP was something that's very common, um, and has been common. So, whether there's a benefit or whatnot, uh, it's more so I would say to the ownership for them. the CMHC knows how to process them. Credit teams know how to process them as well too. and again, there's not... It's, it's really just, they'll look at who the guarantors are and they're still-- we're still gonna have to check the box of twenty-five percent net worth and ten percent liquidity. but again, it, there's no really... I can't really say that, um, there's any benefit to, to doing so when it comes to financing with the CMHC. It's just another stru- another, uh, organizational structure that we've seen, and it's kind of been something that, uh, we've been handling kind of since, since the beginning of our business.

Payam 27:37

Sure. We touched on bonding as a, as another item. Can we quickly go through, timing? what is an overall process? And I would appreciate it if you could talk about different, scales of projects. Like, so if you're doing a fourplex maybe, is it different than doing a m- a sixplex? Or is it do- potentially different than doing a mid-rise 20, 30 unit project? Are these-- are the timelines any different? At what point in time is it better for people to contact someone like you, start the process and, yeah, maybe just walk us through the timelines and durations, please.

Abtin Nikeghbali 28:13

For sure. Yeah, we always like to get involved as early as possible, even at the land acquisition stage for development that may break ground in 12 months. we always like to get involved early, just, underwrite the project, make sure it makes sense. because again, there, there's a multitude of things that could happen. certain things may be offered. For example, one of them is re-reduced property taxes that some of the municipalities offer for projects. And you underwrite the project and there's re-- you under, you underwrite with the reduced property taxes and you're like: Wow, I'm getting to the, to ninety percent loan to cost. This is great, but we actually need to underwrite based on what the property taxes would actually be, should there not be that reduced, those reduced property taxes for a period of 10 years. So those are just some of the things that we like to get involved as early as possible. So timelines, again, the larger the project, of course, there's different queues at the CMHC, with different levels of underwriting or different levels of, you would say, underwriters that need to pick up a file. from our experience, the files that are ninety million plus, those typically take the longest. again, there's only a handful of underwriters at the CMHC that could handle, those transactions. and it just t- it takes a bit longer for them to get picked up, of course, just because depending on the time and how much volume is getting pushed into the CMHC, especially after a major change is announced, we'll typically notice longer than usual wait times in the queue to get those files picked up. For some of the smaller ones, I would say the four plus ones, the six plus ones, those have been pretty quick. But again, they are construction files, so they wouldn't be as quick as your CMHC construction takeout files that get picked up, right?

Payam 29:42

When you say quick, can you give us an idea? Like, are we talking weeks, months? what are we talking about?

Abtin Nikeghbali 29:47

Yeah, right now we're looking at about three to six weeks, for some of the, for some of the smaller stuff. and then for when you go to the larger, projects, you're looking at anywhere from six to 12 weeks, I would say, depending on just the capacity of the underwriters

Payam 30:00

Gotcha. Okay.

Abtin Nikeghbali 30:01

just the

Payam 30:02

good.

Abtin Nikeghbali 30:02

CMATQ, right? You always have the lead time before, so the lead time to prepare a package, go through credit. That could take anywhere from days to weeks, just depending on which institution you're working with. and then after the file is picked up, the underwriting process could take anywhere from a week all the way to a month. Just depends how many questions and come back. And then after the certificate of insurance, funding could take anywhere, just depending on the complexity of file, number of groups that are involved. Again, you mentioned LPGP, right? If there's a bunch of entities, that's gonna take much longer for the lawyers and the lender and of course. but again, that could... funding could take anywhere from four to six weeks, and I've seen it stretch out to numerous months as well, too.

Payam 30:39

Was just gonna say I have seen there are projects that, even though they have CMHC financing and even though the financing will come through at some point, the owners and developers end up paying the first one or two months or maybe even more of the construction costs other resources, from other sources before the actual funding lands in their, in their account. how often and how common do you see that happen?

Abtin Nikeghbali 31:05

Yeah, I, I can't really say I've heard of a project or worked on a project where, you know, someone underwrote their equity contribution to be five hundred thousand on a ten million dollar project, and that's exactly the amount that they ended up putting in, and the funding kicked in, right? it's always-- you're always over-contributing your equity, of course. I mean, the way that the CMHC draws are even processed, is that they pay you-- it's on a cost-to-complete basis, right? So you really have to complete the work, and then the funds are dispersed for that work that's completed. Um, so they're not gonna fund you to do work. It's gonna be, they're gonna fund you for work that's completed. So you're always gonna be in a, in a cycle of front-loading equity and then getting your draw a month or two after.

Payam 31:44

So for, all of our listeners listening to this, because they've heard this conversation unfortunately multiple times before, yes, you will get 95%, but you will get it after the fact. most of the times you're, you, like Optin was mentioning, you have to spend the money, get the work done, and then you will get compensated for it. Okay, I'm gonna try and start wrapping this up. Before we do that, can you give us some idea about the actual numbers that you're seeing, like the rates, the premiums, the... And also maybe some of the benchmarks that, you and the community and even CMHC is using to, come up with these valuations, like in terms of rents. where, what are the sources if, so if I'm a investor, if I'm looking at a project right now, where can I go to see here's the benchmark that CMHC or the lending community is gonna to gauge my rents or the construction costs? Or can you walk us through, maybe give us, some references if, available to check those numbers and give us some guidance please?

Abtin Nikeghbali 32:41

Hundred percent. I would always say when it comes to rents, u-use the resources such as rentals.com, PadMapper, realtor.ca, to really check what similar type product is leasing for in the immediate area that you're gonna be pushing forward with development. I would say don't skip out on the building that's right next door to you. look at the rents that they're getting at the building right next door and don't look at the building that's, four or five kilometers west or east or north or south of you, right? that's, getting the rents that you're looking at, right? And of course, you gotta look at it, with reference to what quality of finishes you're gonna be putting in, what amenities you're gonna be putting into these buildings, and what quality. again, are you gonna be offering parking? Are you not offering parking? Those are all things that I think need to be considered. again, the CMHC has their own kind of real estate appraisal team that conducts kind of analysis for them if need be for files and then, again, the approved lenders as well too. We have our own data, when it comes to a lot of projects. So there may be a project across the street, from your project that you're submitting for, and we see what their appraisal came in at, and we're seeing what kind of rents they're projecting that the property's gonna be attaining when it's completed. So it's kind of, again, coming back to pillar number five, putting it all together. but those are some of the resources I would say to use. In terms of vacancy rates and whatnot, we t- we spoke to that a bit earlier, but the CMHC portal is a great, is a great tool. You could really just zoom, scroll into where exactly you are on the map, and it'll tell you what the vacancy is for there, depending on the area. There's... the data could get very, very detailed all, going down all the way to the census tract. but again, I still would underwrite to, to a minimum of a five percent vacancy on projects depending on which area you're in. And five percent is just for Toronto right now. If I'm underwriting in other pockets or territory markets, secondary markets, that can go upwards of ten percent, on the vacancy. In terms of expense benchmarks, there, there's data on mill rates and whatnot that I would use. I would also speak to your appraiser on expenses and overall the whole pro forma, but those are just some of the resources, I would recommend to someone to use.

Payam 34:37

And obviously, we're gonna put a disclaimer here again for everyone listening that, please don't make any decisions based on the data and the numbers that we're presenting in this episode. This is just for educational purposes only, and you should talk to your qualified, people, legal assist- legal, accounting, and likewise before making any financial decisions. With that being said, can you share any rates or actual interest rates, premiums, and stuff like that from the market today and how they have changed maybe in the past, recent past, or if you're anticipating any changes to come up?

Abtin Nikeghbali 35:10

Yeah. I mean, rates, uh, I think this is a... I wish there was a disclaimer button that I could press. But, uh, bo-bond yields have, have shifted, quite significantly. So the rates that we quote today compared to when this, this podcast is released may change significantly, may go upwards or downwards. So I just wanna give that disclaimer. But again, for some of our larger product, again, it's a, it's a spread over the CMB when it comes to, the fixed term rates. And for the larger product, of course, the spreads are lower. The smaller the project gets, the spreads go wider. So we're seeing rates anywhere from 3.5% to 4%, and then for the really small ones, you're going above 4%, I would say. But again, it, it's, it's the cheapest interest rates you could actually receive in, in, in Canada at this time, right? So it's all following the bond yields. And if the bond yields jump, if the bond yields jump then, so will your rates because you could be quoted a, a spread over the bonds. But, if the bond goes up from, let's just say 3% to 3.2, well, now your interest rate is 0.2% higher. Um, and it's, it's, it's really fluctuating un- up until the day that you rate lock

Payam 36:13

Sure. Okay. Thank you very much, Abtin. This has been very informative. Is there anything that I haven't asked you that you wish to flag to our audience, before we wrap up?

Abtin Nikeghbali 36:23

Yeah, I w- I would just, um, I would say I think you touched on it earlier, just, any project you're looking at, really look at the feasibility of getting it into the CMHC as early as possible. Uh, really lock in that certificate of insurance, lock in what your exit would look like after you're done building by going into CMHC Construction, and always speak to your approved lenders if, if that is an option, if that is a possibility for you. I would say the majority of our relationships started on the completion takeout side and then translated to us doing a lot of construction business for them through the CMHC. so I, I think that's, that's one thing I would leave the audience is with the programs ever-changing, and we really wanna, you know... You, if you wanna really be on the safe side, it's really good to get your projects in as soon as possible and, and lock in your certificates and lock in your exit

Payam 37:05

Perfect. where's the best place for people to find you?

Abtin Nikeghbali 37:08

you can find me on LinkedIn and then my first name, last name on Instagram. We like to, to highlight some of the, some of our highlight deals or some of our, our deals that we like to talk about there too. And then, uh, always g- able to be reached via email, phone, whatever it is

Payam 37:22

Perfect. Thank you very much, Abtin. We'll put additional information in the show notes, and thank you for being here

Abtin Nikeghbali 37:28

Thank you, Payam. Always a pleasure.