Multifamily Advisory

Six dimensions, fixed order

1. 1

   Geography

   Provincial rules, then the metro, then the neighbourhood. Markets are selected where the rules, demand and financing align, and within them, mature neighbourhoods with transit and employment.

2. 2

   Asset quality

   For existing buildings, condition, capital plan and operating history. For new construction, the MLI Select design criteria, the provincial new home warranty and a builder with completed comparable projects.

3. 3

   Financing structure

   Debt matched to the business plan, whether CMHC MLI Select or conventional: rate, term and amortization stress-tested, and every financing condition written into the agreement.

4. 4

   Vacancy and rent discipline

   Rents at or below CMHC zone rents, vacancy sourced from the Rental Market Survey, lease-up modelled as a cash reserve, a full expense schedule, coverage that survives stress.

5. 5

   Execution

   Verified rent rolls and operating statements, delivered specifications, inspectable pro formas and every incentive documented in signed agreements.

6. 6

   Risk allocation

   Every risk assigned in writing: appraisal shortfall, delivery delay, rate at commitment, lease-up and holdback.

1. Why we avoid resale rental buildings and focus on new constructionShould a CMHC MLI Select investor buy an existing rental building or a new one?New. A resale building rarely scores the MLI Select points that unlock the 50-year amortization, arrives with deferred capital expenditure and in-place rents below market, and is appraised on history rather than on a builder's guarantee. A purpose-designed new building earns its points on paper before it is built and is delivered with a warranty.Read the page
2. Remove the 50-year amortization and see which deals surviveHow much of a CMHC MLI Select deal's viability depends on the 50-year amortization?Almost all of it at 95% leverage. On the standard example, a $2.2 million purchase financed with a 5% deposit at 4.00%, the 50-year amortization produces a debt coverage ratio of about 1.16 times. At 40 years the same loan covers 1.07 times, below CMHC's minimum. At 25 years it covers 0.84 times. The amortization is not a feature of the program; it is the program.Read the page
3. The CMHC discretion nobody explains until it is too lateCan CMHC or the lender fund less than the pro forma loan at closing, and how does the holdback work?Yes. The insured loan is sized on the income the insurer and lender accept, not on the pro forma. Where the building's leases at funding do not yet support the underwritten effective gross income, the lender can hold back part of the advance until the income is proven, and the buyer funds the gap at closing. The mitigant is to underwrite to the insurer's view of income before signing, not after.Read the page
4. The 3% vacancy assumption: where pro forma discipline breaks downIs the 3% vacancy rate in every CMHC MLI Select pro forma a data point or a convention?A convention. Every pro forma in circulation uses 3% regardless of city, unit type or lease-up stage. The right approach is to underwrite stabilized vacancy from CMHC's Rental Market Survey for the zone and bedroom type, treat initial lease-up as a separate cash item rather than a vacancy percentage, and stress the result at 5% vacancy and a 10% rent shortfall before relying on the coverage ratio.Read the page
5. Draw versus takeout: the decision that determines your leverageShould an MLI Select investor finance a new building with a construction draw loan or a takeout at completion?For most investors, takeout. The builder carries construction; the buyer's insured mortgage funds at completion against a 5% deposit and demonstrated liquidity of about 10% of the price. A draw structure puts the insured construction loan, its progress advances and its interest during construction on the buyer, requires roughly twice the liquidity and adds execution risk in exchange for earlier control of the rate and the asset.Read the page
6. Is CMHC MLI Select right for your situation?Who qualifies for a CMHC MLI Select purchase, and who should not attempt one?MLI Select is a balance-sheet program. In the takeout structures we arrange, the buyer contributes a 5% deposit, demonstrates liquid assets of about 10% of the purchase price and net worth of about 25%, and signs a personal guarantee. Income matters less than liquidity and net worth because the building's income services the debt. It fits investors with capital they intend to hold for a decade; it does not fit anyone who needs the cash flow immediately or cannot absorb a funding shortfall.Read the page
7. Anatomy of an MLI Select forward purchase, from agreement to fundingWhat actually happens, and what does the buyer pay, between signing a new-construction MLI Select purchase and funding the mortgage?The buyer signs a fixed-price agreement conditional on legal review and on obtaining a CMHC certificate of insurance, stages a 5% deposit, pays the per-unit CMHC application fee and legal costs, and funds the insured mortgage at completion. The mortgage equals the price less the deposit, the premium is added to the loan, and any builder closing allowance is paid to the buyer on closing under a rebate agreement. The rate is a projection off the Canada Mortgage Bond yield until the lender commits.Read the page
8. How we evaluate a CMHC MLI Select deal: the six-dimension frameworkWhat framework does Daniel Kim & Associates use to decide whether an MLI Select project is worth an investor's capital?Six dimensions in a fixed order: geography, construction quality, financing structure, vacancy discipline, builder execution and risk allocation. A project must clear each before the next is considered. Most projects fail on the fourth or sixth, where optimistic rents and unallocated risk hide inside a pro forma that looks fine at the first three.Read the page

Tools and research

• Standard underwrite

  The model applied to every project, open for your own inputs, with rate, rent, exit-cap and amortization stress cases.

• Quarterly research

  The CMHC and Bank of Canada inputs behind the standard underwrite, published quarterly with the methodology.

• MLI Select explained

  What CMHC MLI Select is, how the points system works and what each tier unlocks in leverage, amortization and premiums.