Experience with CMHC financing on apartment buildings?

[MarkTorgerson]

I am looking to refinance through CMHC a couple apartment buildings I already own. The fees make sense as the interest rates are very good with an extended amortization period. My strategy with these buildings are long term holds.



This is my first time going the CMHC route for apartment buildings. The process looks quite detailed with a variety of required reports.

Does anyone have any suggestions that have already gone this route? How long of a term did you go with?

Any potential snags a person should be aware of?



Any input is appreciated.



Thanks in advance.

 

[Thomas Beyer]

CMHC does NOT provide good financing any more these days unless you wish to stay below 70% or so loan-to-value (LTV). The reason: CMHC uses very conservative cap rates to arrive at an artificially low underwriting value.



Someone should take them to court as they routinely ignore market realities such as prices real people pay for real buildings. The fees charegd are on their value not the market value. So you might get an 85% loan-to-CMHC-value which in reality is a 65-70% LTV, but you pay their huge fee for 85% LTV which is 4.5%. A huge money maker for the government. Might be Canada's most profitable crown corporation. It should be abolished actually.



Having said that you should shop around. Many lenders ought there tripping over each other with super low interest rates without CMHC up to 80% LTV.



So the decision you have to make is if you wish to be more like a REIT with lower LTV but low interest rates and some cash-flow, then go CMHC. Or if you wish to have a higher ROI with higher LTV but less cash-flow, go without CMHC.



More on this here: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-26733-133015-What_is_better_cash-flow__or_higher_ROI_.html

 

[MarkTorgerson]

Hi Thomas,



You are exactly right. I am getting 85% LTV but based upon CMHC value. In reality it works out to approx. 70% loan-to-market value. I have owned this building for several years so the equity is there.



I can get a 2.7% rate with a 35 year amortization. That certainly gets my attention from a cash flow perspective.



Regarding the process itself with CMHC, did you find it difficult? Any tips or suggestions if this is the route I choose?



Thanks,

 

[Thomas Beyer]

[quote user=MarkTorgerson]did you find it difficult?


No, just slow. Budget 2 months minimum. Might be holdbacks if not pristine.



Don't get a ten year term. Take 5, then re-evaluate in 5 years. I locked in 2 mortgages 7 years ago for ten years, as we thought interest rates cannot go lower. In 5 years they might be lower than today, actually, not necessarily higher !



You can get 3.2% to 3.3% from conventional lenders, so 0.5% to 0.6^ savings but a 4.5% fee .. 7-9 year break even. Not really all that attractive a rate as you may refi before 10 years.



Depending on your cash needs I'd go higher LTV with a conventional bank, then invest the surplus cash elsewhere, say by buying another building.



I used to be a big fan of CMHC and used it a lot, and still have some maturing mortgages with CMHC so I can relate.



Shop it around, and if you bundle 3-4 buildings you might get better rates if you have one mortgage on, say 4, buildings.

 

[MarkTorgerson]

Thanks Thomas, great info.



Out of curiosity, where are you getting 3.2% to 3.3% on conventional mortgages?

What are the highest LTV's you are seeing with conventional banks?

 

[Thomas Beyer]

From a broker.



80% LTV.

 

[Neil1]

[quote user=ThomasBeyer] if you bundle 3-4 buildings you might get better rates if you have one mortgage on, say 4, buildings.





- All 3 must be same type buildings? or say 4-plex (residential), 8-plex (commercial) and 20-plex (commercial) are doable/combine-able too?



-Can this be done working with a bank directly? or through a broker better?



- Say different owners are currently on title and on mortgage for different properties. Can all buildings still probably be combined as long as all owners now agree, for the purpose of implementing your suggestion Thomas, to put all properties under all owners if that is what the bank wants (as based on current JVs they all own them all equally)? Or will the bank actually have an issue with that?



Thanks,

Neil

 

[Cory Sperle]

It appears CMHC refinancing is not the cash cow it was 10 years ago. I understood that CMHC evaluates low on purchase, but I thought they were more reasonable on refinance, but I see that is not the case. I have also heard they are clamping down on the limited partnership, and other investment structures as well. It makes me wonder why anyone would want to partner with the federal government on commercial mortgages anymore?

 

[Thomas Beyer]

[quote user=Neil1] Or will the bank actually have an issue with that?


yes they will.



CMHC requires all co-owners to co-sign personal guarantees now.



Never mix mortgages of different co-owners. They should all be in different legal structures (trust, LP, corporation) and each gets their own mortgages.

 

[Cory Sperle]

[quote user=ThomasBeyer]CMHC requires all co-owners to co-sign personal guarantees now.








Well that in itself pretty much removed CMHC as an option at all for me. Unfortunate.

 

[MarkTorgerson]

If there are any brokers out there that can get me approx. 3.3% and 80% LTV on a conventional mortgage, please contact me.



Thanks