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

Speaker 1 Hello everyone and welcome to another episode of the Real Estate Development Insights podcast where it bring you ideas, experiences and best practices from the real estate development industry. My name is Payam Nursalahi. I'm the President of Solnik Construction Group where we help GTA developers stress test, plan and build mid rise and Multiplex projects with fewer surprises. My guest for this episode is Optin Nikkeiwali. He's a director of Mortgage origination at Canada ICI, which is one of the lending companies which is very active in CMHC realm these days. Optin has been involved there for the past few years and has advised on over $4.5 billion in real estate financing across Canada, leading the structuring and underwriting of complex debt and equity capital solutions. In this episode, I wanted to have a real practical conversation with up in about very particular type of project. I'm a big believer that in the next year or two, we're going to see a new wave of policy enabled mid rise projects and smaller mid rise projects come to Toronto and we're going to see somewhat of a similar rush that we're seeing on the multiplexes on the mid rise side. These are probably going to be a six story, I'm guessing less than 25 units. And I think the CMSC financing is going to be a very big part of that equation. And for that purpose, I want to spend this time with often on this episode and try and get a better understanding of what a solution would look like, how one would go about getting CMSC financing for this type of project, what requirements there there exists. And we cover a lot of bases with opted. As always, you can find more information about our guests, our work, and other resources that we provide, including free webinars, our free newsletter and other resources on our website realestatedevelopmentinsights.com. That's all one phrase. And Please remember to subscribe to the show. Even better, please tell your friends and family and coworkers about our show if you find it interesting and help us grow the show together. Thank you and enjoy listening. Hey, Upton, welcome to the show. How are you doing today? Speaker 2 Hey, I'm good. It's a pleasure to be on, finally moving from viewer to speaker. Speaker 1 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. Thank 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. Speaker 2 Yeah, my name is, my name is Acton. I'm a director of Canon ICI Capital Corporation. At Canon ICI we're seeing me T approve 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. Speaker 1 So you and I have been obviously working offline and we have a couple 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 near future, we're going to hit that tipping point where these projects are going to 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 enabled by the major St. Initiative and EON Initiative Institute of Toronto, which for those of our listeners who are not familiar with 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 instead of Tron, right. So what I'm wanted to kind of do with you in this episode is I want to kind of do a little bit of a role play. And I think it has as much as we can, we want to make it practical. And the idea is I'm a new investor slash 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 want to up my game and I want to go and start doing these small mid rises, it's called them apartment buildings and purpose built rentals. And I really want to try and leverage and use CMHC financing analyze 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 OK with that? Speaker 2 Let's do it. Speaker 1 Fantastic. OK, so let's start with that premise. I'm looking at a parcel in city of Toronto. Let's say it's a 50 or 60 foot lot and it's location on one of these. The location is 1 of on one of the major streets in city of Toronto. I'm 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 CNBC and will I select or not? Speaker 2 Yeah, for sure. I mean, I would actually reduce the question count to 4 because 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 5 pillars. But the 5th pillars is us as those who are presenting the deal. But the first one is net worth, OK. What's our net worth position? Do we meet the CMHC requirement for net worth, which is 25%? 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 10%. It's kind of been the unspoken rule across the lending community with different credit groups. But again, that number could vary just depending on how much equities in the project or how much equity needs to go into the project. But again, that 10% look 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, liquidities kind of become the number one talking point when looking at a new project. So there'll be pillar #2 moving to pillar #3 would be construction experience. So you know, coming from a custom home background, let's just say that's your your main line of business and you've built 2030 custom homes. We could see that transition from, you know, a four, it's going to a 4 + 1, you know, that is feasible and in 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. So that's again, one of the things that we're asking, what's your construction experience? Hadn't built anything similar to what you're planning on building. And then that kind of guarantees the direction would go in words, Hey, are you hiring now a builder, for example, who's who has the experience, who's built a number of six story buildings or if they don't have construction experience and are you hiring someone who has the experience building these smaller multiplexes? And then the fourth pillar is, is property management experience. How are you going to manage this property once it's complete or using a third party, will it be software managing it? What's your experience and whatnot? OK. Speaker 1 Perfect. So that gives me. So that gives us a 10,000 feet view of the process. But now if it's OK with you to start diving in, I want to kind of drill in and get some detailed answers from you because as I'm sure you would agree to the devils in details and a lot of these things might look very. Speaker 2 Good at the beginning, that's where. Point number. That's where the 5th pillar comes in, right? Where? Speaker 1 We What is the fifth pillar? Speaker 2 I would say the fifth pillar is how a deals presented, right? It all depends. There's different stakeholders throughout the process. The see mate, see 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 clearly in order for a deal to go forward. So I would say the fifth pillar, any successful deals, how the deals presented as well too? Speaker 1 So, so I'm just going to do a quick recap here. So pillar one net worth, pillar 2 liquidity, pillar 3, construction experience, pillar 4, property management and pillar 5 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 investment industry, we used to build investment cases for new projects. Is that the same idea? Speaker 2 Yeah. Speaker 1 Very similar. OK, 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 reason, for whatever reason that one particular site or street or corner or area, don't touch it. CMHC just doesn't like you can't work it. Is there something like that can come to your mind? Speaker 2 Yeah. We haven't had anything, especially if we're speaking to Toronto, we haven't had anything of that nature or there's a specific corner or location where they just don't want to. The CMHC doesn't want to get involved. I would say you, you may run into something when you're looking at the tertiary markets or some of the 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 going to underwrite a little bit more stringently on those. But again, we're in a bit of a high housing crisis, specifically in Toronto. Affordability has been a concern, supplies been a concern. So up until now, we haven't really seen anything from our experience where they're saying, hey, we want to 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 #5 is deal presentation, but also making sure that we're looking at the locations that near transit, we're looking at the rents. Does this? Does this fall in line with C meets these kind of? Speaker 1 It makes sense. Basically what you're saying is that make sure it actually makes sense. You don't want to go and build units in the submarket that already has hundreds of units sitting on the market and non renting. That's basically what you're saying, right? Speaker 2 Correct. Yeah. Speaker 1 Gotcha. OK, so so let's move forward and I want to kind of start digging into this topic of how much can I actually borrow? Because when you hear the head or read the headlines or hear the rumors on the street, we can get 95% of something, 9090% of something funded by CMAC. 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? A. Speaker 2 100%, I mean 95% loan to costs or loan to value. Those are the 2 you would say, but you're able to let the borrow up to 95% loan to cost of sticking to construction on this one. Again, it's a metric, but against the NEC and and credit teams like ourselves are going to take a look at the underwriting and we're going to 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 CMEC make in their underwriting is that, you know, typically approved lenders were pulling their vacancy data from the CMEC 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 is released in October. We look at the most recent October data. And then we'd also look at the trailing 4 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 CBT has, CMEC 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% of myth? Nope. Is every single project going to come in at 95%? No. So we've seen a ton of projects at 90 percent, 85%. We've been seeing projects 75%. It really just depends on how the underwriting looks, what the land cost was at the time when it was acquired, and 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 you think that your property taxes are going to be half of what everyone else's is, then you're already underwriting the wrong project. They're underwriting the incorrect way and you're going to get a surprise when you get to your certificate of insurance back to you. Speaker 1 And I guess at the end of the, it goes back to make, making sure that your numbers make sense and you're run. If you're underwriting or writing a performer 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 hard and not that hard to spot 1 project that has the numbers off the charts and not working. So be careful about that, please. And just to be clear, at the 90 percent, 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. Correct. So if I end up trying to try and spending 10 thousand, 10 million bucks on an entire project, I'll get 95% of that, not just construction or not just land value. Speaker 2 Correct, It's the full budget. Speaker 1 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 take out financing at the time that this COI comes and maybe walk us through that, elaborate a little bit on that and why is that beneficial? We'll be right back. This episode is brought to you by Solnik Construction Group. As my company, we help property owners and developers turn the sight and an idea into a clear buildable plan. From early stage visibility and pre construction planning to construction management and owner representation. Our role is to identify risks early according to the right team and help the projects move forward with fewer surprises. To learn more about how we support multiplexes and mid rise builders instead of Toronto and all over GTA, please go to our website solnikconstruction.com. SOLNIK Construction dot com. Thank you. Speaker 2 Yeah. I mean the CNBC programs been been ever changing. I mean there's always changes coming out every few months. And when the program first came out in 2022, we had the scoring system where you could basically score 100 points to be energy efficiency. And what that meant was someone could build a fully energy efficient building and get a 50 year amortization. Again, Fast forward to July, June 19th, 2024, they made the change. We're now energy efficiency can only be cap can only get 50 points. That's the maximum that you can get through energy efficiency. 50 points translates into a 40 year amortization. So the difference is with those who got their certificates of insurance between 2022 to June 19th, 2024 is that they locked in that 50 year amortization for once when they complete their construction. Those who submitted after June 19th, 2024 are now looking at a four year amortization. They could look for a 50 year amortization. Should they, should they incorporate affordability. So now to be able to get a 50 year amortization under the MLS Select program and you do have to incorporate affordability into the project. Speaker 1 I think, I think if I want to summarize my observation of the CMSC 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 if the more, the better the product is and the more in line that product is in the project is with those 3 criteria as the better terms you're getting. And it's, it's, it seems to me and please by all means correct me found 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 we're getting in probably not getting funded were too many as CNBC is trying to maybe reduce them to those to actually make sense. Is that rectal preservation or am I? Speaker 2 Yeah, it's a good 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 20,000 units per year. Up until 2015, it stayed under 40,000. Since 2023, we've started at 81,000 up until 2025 or at 122,000. So that just tells you how much more, I guess you would say business or how much more insurance. Basically this he meets, he's taking on then they really want to fulfill their mandate, right, which is to bring energy efficient housing, affordable housing, accessible housing to the market and bring this, This is. Speaker 1 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. OK. 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 the CMAC 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 requirements? Speaker 2 Yeah, we'd, I mean, I'll just really go through a net worth form for someone, but I guess the Canada ICI template and the 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 a specific project, for example the Holt Cole 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, GI, CS or any other anything else that's on. 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 to this goes as far as car loans, credit card loans, line of credits and moving down. We would also look at business holdings and if there's any other investments on that end. And then moving down, we look at the 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 CMET set that to 0 on their end and they calculate what the net worth is. So we've invested in a startup that's a private company, they'll set that investment to 0. So doesn't count towards your net worth. Or if there's any precious metals or jewelry that you want, those are set to 0. So the watches, the Rolexes, the rings set to 0, the same with vehicles and whatnot. So I would say they're really important lines or the really important sections of a network statement would really be the cash and savings section and the marketable security. So stocks, Gic's and whatnot. And then of course, the real estate. Speaker 1 And I guess 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. Yeah. Is it because of the appraisals on land values or like what else could be there? Speaker 2 Yeah. I mean, there's a lot of people who still think their property is worth what it was worth in 2021-2022, right? More 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, you just do you check these test values, which are typically lower than what the actual market value is. But again, you get an appraisal done, you notice. Oh man, 75% of the value that we've previously looked at on land. It's been quite, quite the drop in values, of course, as you may know with where the development markets at, where the condom markets at. But those have been the big surprises. And to bring it on to 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 GR stock portfolio that they totally forgot about and had great growth, especially with the kind of. Speaker 1 That's a very good problem. Yeah, that's a very good problem to have to find that maybe it. Lottery ticket in your pants that you forgot about that would be also even better. OK, 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 going to circle back to liquidity later, but I want to kind of dive into the experience part of it. And quite frankly, because they're 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? Are you seeing like first of all, have you seen any of these application go through yet? Do you anticipate, how do you anticipate CMAC or the London community would generally approach this? Speaker 2 Yeah, I would say you know we we started financing Canada ICI as a whole, our businesses has always revolved around some of the larger stuff, the mid rise buildings, the high rise buildings and the larger subdivision style projects. In 2023 our team financed its first Multiplex as a project on the Ossington area. It was a 4 + 1. This was the time when you would have to basically get the permit for the four units then close the the permit then get the permit for the garden suite. So what we were doing on those files were see makes you take outs because they were coming to us with a completed building. These are custom home builders that were coming and doing this. So right there you're showing the same mates, the honest team mates, he take out the hate. You've already executed on a 4 + 1. Now when you go back to them, I guess Fast forward to I think it was June 2025 where they started the city started to offer all permits upfront. Fast forward when you're able to do so to go through the same mates with help, you're able to get financing through the same mates 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 group stepping into the space now going into the first Multiplex project through the scene HC, 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 tarry on history, for example, just when we're doing our credit meetings, we'll look at what they have on the H CRA, see how many completions are registered there. Those are all things that form a part of the resume form a part this story. And that's that relates back to pillar #5. So it's like, OK, great, you, you built 30 homes, but if you've also had 30 claims on Terry, that kind of 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 find it. We're usually financing the construction because we're planning on financing the term piece as well too. So we're not looking to have issues 2345 years down the line and toward term loan. Speaker 1 Yeah, you don't want to have long term issues with the actual asset. Speaker 2 Correct with leaks anything right, but it's just it's a drain on the bar we're just. Speaker 1 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 to do they need to come in as a partner? Do they need to come in as AI? Don't CCDC 5A contract like how does how does 1 satisfy CMC or the lending that yes okay I didn't have the proper experience in house but somehow I've checked that box. Speaker 2 Yeah. I would say for the mid rise projects, I would say definitely being well above that, that 25% net worth requirement, above that liquidity threshold is key because it's almost, it's almost an investor and build their relationship now. So they really want to 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, 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 to go outside the schedule or anything where now you've got to cut up interest out of your pocket and then hold the idea of bringing someone in. It could be in the form of an equity partner, it's always great. Or it could be in the form of, you know, signing ACC DC5B, 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 days that we've worked with on some of these mid rise buildings actually want the 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 AC. You see two, of course, you're in you're it's a fixed price contract, right? And then CMC's new rule recently came on 25 minutes plus where they're most of the wording is most likely, but it's they're going to apply bond a bonding requirement there, right? So really ensuring that either that GC was bringing on the project is able to get bonded or the traits that are being used do have some sort of bonding capacity. Speaker 1 OK, 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 to 25 because that also obviously is a bigger skill project. Typically I will need more than one lot to make that happen. And 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 performer work with bondable trades on smaller jobs, it's a feet of its own for anyone who hasn't been through it. OK, so, so we've covered net 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 bitter? Speaker 2 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 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? I've ever been managing A prop portfolio for example of of multi units, whether that be triplex, quad flexes or whatever it be across the GTA. Haven't been managing this for for 5/10, 10 years for example. And do I have systems in place now to manage a building with 20 units in it with 20 tenants in there? Or should I look to to really bring on a group inside a property management agreement prior to construction starting for this building? Right. And again, a landlord tenant relationship is always both ways. I'm not going to go too deep into it, but the wrong property manager could make tenant experience horrible and that could drive runs downwards and that drives the property's performance downwards. And the next thing you know, the properties and default, right? And that that always goes with, you know, tenant screening and all those things as well too, because you build a 20 unit building, you bring in a bunch of tenants that you know, may cause issues and whatnot. It could ruin the experience for other tenants. And again, those are all things that that come into place. 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 CMAT doesn't doesn't really buy it, they could mandate the third party property management within the certificate of insurance and the price of the construction advanced prior to the construction loan being advanced. They would require to see that side property management agreement with the third party and they would look at their resume of course too. Speaker 1 I'm beginning to think that it might be treated the same way that Terry On used to treat condos because Terry On and basically when we wanted to start condos before you had to have a property management team, which it was a reputable company actually prepared 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 really 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? Speaker 2 Yeah. Again, when anything gets popular, I mean right now this, the CMHC, we've heard about this data that they're responsible for about 85% 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 their risk level. And then again for that 15% slug that's not using seem, they see they're usually going to translate to coming back to the seem they seem via seem. Speaker 1 They will do traditional financing just to build a construction and build a building and do the construction financing and then eventually do a take out there. Why wouldn't you do that? Can we briefly touch on the LPGP structure and how that potentially effects these deals? Because the way I'm seeing this and then the way I'm envisioning what probably will happen in trying next few years is that we'll probably see a number of LPGP setups and that's general partners and limited partners. And maybe someone has a piece of land and he needs to partner there or he or she need to partner up or they want to partner up together and purchase a new property. Is there any red flag that are there any different requirements when an LPGP structure is put in front of you versus simple company that owns a property? Speaker 2 Yeah. I mean we've, we've seen all the all this, all the structures, LPGP, just a sole owner, owner in the property and whatnot, especially given that, you know, previously we used to be financing and we still are financing of course, but the major previously the majority of our business was all larger ones. So LPGP was something that's very common and has been common. So whether there's a benefit or whatnot, it's more so I would say to the ownership for them. The CMEC knows how to process them. Credit teams know how to process them as well too. And again, there's no, it's, it's really just the look at who the guarantors are and they're still, we're still going to have to check the box at 25% net worth and 10% liquidity. But again, there's no really, I can't really say that there's any benefit to, to doing so when it comes to financing with the CMEC. It's just another another, another organizational structure that we've seen and it's kind of in something that we've been handling kind of since since the beginning of our business. Speaker 1 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 four Plex, maybe is it different than doing 6 Plex or is it doing different than doing a mid rise 2030 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. Speaker 2 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. Again, there's a multitude of things that could happen. Certain things may be offered. For example, one of them is reduced property taxes that some of the municipalities offer for projects and you underwrite the project and there's you under, you underwrite with the reduced property taxes and you're like, wow, I'm getting to the 90% 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 produced 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 cues that the scene may see 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 90 million plus, those typically take the longest. Again, there's only a handful of underwriters at the CMEC that could handle those transactions and it just 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 CMEC, especially after a major changes announced, will 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 CNC construction take out files that get picked up right. Speaker 1 When you say quick, can you give us an idea like are we talking weeks, months? What are we talking about? Speaker 2 Yeah. Right now we're looking at about 3:00 to six weeks for some of those, for some of the smaller stuff. And then for when you go to the larger projects, you're looking at anywhere from 6 to 12 weeks, I would say, depending on just the capacity of the underwriters. And that's just the same ATQ, 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 strategy 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 going to take much longer for the lawyers and the lender, 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. Speaker 1 Which is because they may have seen there are projects that even though they have CMHC financing and even though the CMHC 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 from other resources from other sources before the actual funding. It lands in their in their camp. How often, how common do you see that happen? Speaker 2 Yeah, 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 500,000 on a $10 million 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 CMEC draws or 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. And so they're not going to fund you to do work. It's going to be they're going to fund you for work that's completed. So you're always going to be in a cycle of front load, bring equity and then getting your draw a month or two after. Speaker 1 So for all of our listeners listening to this, because I'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 often was mentioning you have to spend the money, get the work done and then you will get compensated for it. OK, let me 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 CMAC is using to come up with these valuations like in terms of rents, where, what are the sources? If so, if I'm an investor, if I'm looking at project right now, where can I go to see here's the benchmark that CMAC or the lending community is going 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 guiders 100? Speaker 2 Percent, I would always say when it comes to ransom, you use the resources such as rentals.com, Pad Mapper, realtor.ca to really check what similar type product is leasing for in the immediate area that you're going to be pushing forward 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 4-5 kilometers West or east or north or South of you right that's getting the rents that you're looking at right now. Of course, you got to look at it with reference to what quality of finishes are going to be putting in, what amenities are going to be putting into these buildings and what quality. Again, are you going to 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 runs they're projecting that the property is going to be attaining when it's completed. So it's kind of again, coming back to pillar #5 putting it all together. But those are some of the resources I would say to use in terms of vacancy rates and whatnot. We spoke to that a bit earlier, but the CMEC portal is a great, is a great tool. You could really just scrolling to where exactly you are on the map and I'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 track. But again, I still would underwrite to a minimum of 5% vacancy on projects depending on which area and then 5% just for tomorrow. Right now if I'm underwriting another pockets or territory market, secondary markets, that can go upwards of 10% on the vacancy. In terms of expense benchmarks, 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 performer, but those are just some other resources I would recommend someone to use. Speaker 1 And obviously, we're going to 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 assistant, 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 go off? Speaker 2 Yeah. I mean rates, I think this is AI wish there was a disclaimer button that I could press with bond yields have shifted quite significantly for 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 want to give that disclaimer. But again, for some of our larger product, again, it's, it's a spread over the CNB when it comes to the fixed turn 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 1/2% to 4%. And then for the really small ones, you're going above 4%, I would say, but again, 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 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 .2% higher. And it's, it's, it's really fluctuating on up until the day that you rate lock. Speaker 1 OK. Thank you very much. Opt in. 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? Speaker 2 Yeah. I, I would just, 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 CMEC as early as possible. Really lock in that certificate of insurance, lock in what your exit would look like after you're done building by going into CMEC construction. And always speak to your approved lenders if, if that is an option, if that is a possibility for you. Obviously the majority of our relationships started on the completion take outside and then translated to us doing a lot of construction business for them through the CMEC. So I think that's, that's one thing I would leave the audiences with the programs that were changing and we really wanted, you know, if you want to 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. Speaker 1 Like where's the best place for people to find you? Speaker 2 You can find me on LinkedIn and then my first name, last name on Instagram. We like to highlight some of the some of our highlight deals or some of our deals that we like to talk about there too. And then always able to be reached via e-mail, phone, whatever it is. Speaker 1 Perfect. Thank you very much, Upton. We'll put an additional information in the show notes and thank you for being here. Speaker 2 Thank you pal, always a pleasure. Speaker 1 Thank you for listening to Real Estate Development Insights Podcast. For more practical conversations, articles, project guides, and resources on real estate development, financing, design approvals, and construction, please visit our website realestatedevelopmentinsights.com And while you're there, Please remember to subscribe to our free newsletter so you get updates about upcoming events, webinars, and podcast episode. If you find this episode useful, please consider sharing it with someone who works in the real estate development or. Are interested in learning more about it. Thank you.