10 May Navigating the market: How to mitigate delays in commercial lending
Navigating the market: How to mitigate delays in commercial lending
If you’re a real estate investor in the Montreal market, or are considering the purchase of your first multi-residential property, there are certain market conditions to take note of. Primarily, in an industry where timing is king, significant delays in the lending environment are currently creating headaches for investors throughout Montreal, and Canada. Thankfully, there are options, and with the right guidance investors can help ensure their transactions are successful by preparing to mitigate any downside created by the delays.
The situation right now is most notable for investors seeking financing from the Canada Mortgage and Housing Corporation (CMHC), which tends to be the default lender of choice for many individuals.
“Right now the CMHC is experiencing severe delays of up to 16 weeks for a variety of reasons, including low rates bringing in high volume, and complications related to COVID,” said Jonathan Gagnon, commercial mortgage broker and vice-president, Orbis Commercial. “To be clear, it’s not to disparage the CMHC whatsoever, this is just the current reality facing investors, so we have to deal with the situation to ensure our clients receive the financing they’re seeking and don’t miss out on opportunities.”
The delay issues are primarily impacting investors looking to purchase with minimum down payments, as the delay is forcing investors to seek alternative lending options with potentially less favourable conditions. The need to expedite financing is tied to the fact that, given the hot market, sellers will always favour a quicker closing date, meaning investors are often essentially being timed-out of the market by buyers with more cash on hand. Alternatively, other investors are sitting on the sidelines waiting out the situation because they aren’t even aware of the options available to them outside of the CMHC in the alternative and private lending markets. That’s when commercial mortgage brokers can really be an asset to clients as they can navigate the lending landscape to identify suitable solutions.
“Buyers need to be aware of the current situation and be prepared,” Gagnon said. “Simply having a banker isn’t enough anymore, and in many cases you need a team to assess your lending profile and leverage options that have been unexplored to date; it’s not that bankers aren’t good at what they do, it’s just that they’re limited to their own products, the same way one brand of car dealership isn’t going to sell you new models from another unrelated brand.”
Independent commercial mortgage brokers, on the other hand, have the ability to be nimble and flexible and can really think outside the box in these situations to identify funding options to mitigate delays.
Moreover, in some cases mortgage brokers are having to step in to reassure sellers and advocate for their clients when delays are an issue threatening the completion of the deal.
For instance, Dr. Naji Wakil was one such investor who recently required this type of intervention.
“By providing a letter of recommendation to the agent involved in the sale, as well as the seller, Gagnon was able to communicate that the delays were simply out of the my control, but assured them that obtaining financing approval would not be an issue,” Dr. Wakil said.
In addition to reassuring the seller, this gesture was also important because it ensured the buyer was not wasting his time by exceeding the deadline and voiding his right to purchase, Gagnon explained.
“It’s really important to manage this part since what we are ultimately trying to avoid is taking on a file with a limited time until closing and then having the seller change his mind when another buyer promises a higher purchase amount,” Gagnon said.
Unfortunately, these instances are happening more often due to current market conditions.
To demonstrate how much the market has changed over the last year, there are now lenders who have developed new financing products specifically for investors who meet certain criteria and need short term bridge loans while they await CMHC approval.
“It’s a hybrid model for investors with solid track records as a means of coping with the current market,” Gagnon said. “Even banks are becoming more competitive in some instances; everyone in the industry understands the situation and is trying to find solutions to ensure that the flow of real estate investment dollars continues into the economy.”
This is critically important to the overall economy, especially in the downtown core and surrounding areas.
“To any investor currently struggling with market conditions, I would encourage them to contact their trusted commercial mortgage broker because they’re really in the best position to provide access to every possible lending institution and an array of private and alternative lenders,” Gagnon said. “They’re also in the best position to help clients navigate this unique situation and market.”
For most people, buying a home means taking on the largest financial commitment of your life. The stress involved can be quite significant, especially for first time buyers who have never gone through the process before. One of the biggest decisions buyers must make is whether to opt for a fixed or variable rate mortgage. But before this choice can be made, it’s important to understand the difference between these two options, as well as the pros and cons of each.
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