Now, more than ever, Canada needs affordable housing. In the interview ahead, Daniel Bragagnolo, First National’s Director of Commercial Financing, discusses the financing complexities of affordable housing and the advantages of CMHC’s new Flex Program.

What is the definition of affordable housing?

It’s an umbrella term that keeps expanding and really describes a whole continuum of housing. It can refer to social housing, including rent-geared-to-income units, assisted-living accommodations, and housing for the middle class that offers just below market rents.

What makes lending on affordable housing different than, say, lending on a regular apartment building?

The underwriting isn’t as simple as a typical apartment building where market conditions dictate the revenue and all rent comes from the tenants. In affordable housing, that’s not the case. There are many different funding or subsidy pools that affordable housing providers can access. Many times, these funding sources can have various restrictions, so it’s important as a lender to understand each one.

What is the CMHC Flex Program?

The CMHC Flex Program is a financing program aimed at facilitating more purpose-built rental construction when the developer agrees to certian affordable requirements within the building. Its main advantage is the significantly reduced equity requirement to start construction.. Aconventional construction loan may require 20-25% equity at the beginning and during construction where this program can go as low as 5% equity. This lower equity component increases the return on investment for the developer.  A potential project will also become more affordable for a developer based on significantly lower premiums than a normal CMHC insured mortgage.

The rental requirements to qualify for this program are either:

• rents at 10% below the market potential for the planned project while also having 20% of the units at or below 30% of the median income for its region or;
• the building can have a separate affordable rental agreement with their region or province to qualify for the program.

While developers benefit from lower equity contribution and a discount on the CMHC premium, tenants also benefit from below market rents and an increase in supply putting downward pressure on rents for that market place.

How does First National support clients in regards to this program?

As this is a new program for the lending sector, CMHC and developers there are a lot of nuances that need to be communicated and considered during project planning and the loan approval process. Given the elevated risk and importance on timing that comes with development projects, it is important that there are no surprises. Our in-depth knowledge of the needs of the development community and longstanding relationship with CMHC allows us to ask the important questions and provide the right advice to ensure all of the stakeholder’s expectations are met. it’s important to have a lender who can benchmark the application against other recent CMHC submissions and ensure the best deal possible for both the developer and CMHC.

So your role is both as an advisor and a lender?

The two go together. Our goal is not just to provide access to capital, but to provide strategies and innovative advice that results in greater flexibility for providers and developers to help them achieve their operating goals. We ultimately make a complex process simple for housing providers and developers who haven’t had to apply for a mortgage in 40 or 50 years or apartment developers who are new to the sector. Providing this advisory role in a complex industry is very rewarding, and we are proud to serve a sector whose importance to society is without question.

Any final thoughts?

Over the years, we’ve used our expertise to fund billions of dollars of first, second, and construction mortgages for affordable housing providers. In so doing, we’ve helped providers transition to a self-sustaining model and now with the new CMHC Flex Program are helping the industry provide more units to the market place across the country. Simply put, the affordable housing team at First National has the experience and is open for business.

To learn more about First National’s affordable housing mortgage strategies, call or email Daniel at 416.597.5460 or daniel.bragagnolo@firstnational.ca.