Commercial Mortgages

The property qualifies, more than you do

Residential lending is about the borrower's income. Commercial lending is about the property's income. The key figure is the debt service coverage ratio: net operating income divided by the annual mortgage payments. Most lenders want comfortably more than 1.0, and many look for around 1.20 or better.

Net operating income is rent less vacancy allowance and operating costs, before financing. That means a rent roll, actual expense statements and, for commercial tenants, the leases themselves. Clean financials shorten the process more than anything else.

Asset classes and what they attract

Multi-family residential of five units and up is the most lender-friendly class, and it is the one where CMHC-insured financing applies, bringing higher loan-to-value limits, longer amortizations and materially lower rates in exchange for an insurance premium and a slower approval.

Mixed-use buildings are priced according to the residential share. Retail and office depend heavily on tenant covenant and remaining lease term. Industrial has been in strong demand. Special-use properties — gas stations, hotels, care homes — are a specialist conversation with a shorter lender list.

• Multi-family 5+: best terms, CMHC eligible
• Mixed-use: priced on the residential-to-commercial mix
• Retail and office: tenant quality and lease term drive the deal
• Industrial: strong demand, straightforward underwriting
• Land and special-use: private or specialist capital

Terms that differ from residential

Expect shorter terms, commonly one to five years, with amortizations of twenty to twenty-five years, or up to forty on CMHC-insured multi-family. Loan-to-value is typically 65% to 75% conventionally, and higher when insured.

Lender fees are normal in commercial lending, usually a percentage of the loan amount, and there are third-party costs: appraisal, environmental site assessment and often a building condition report. Budget for them at the start.

How the process runs

We package the property: rent roll, leases, two to three years of operating statements, the current mortgage details, photos and your own background and net worth. That package goes to the lenders whose current appetite fits the asset.

Timelines run longer than residential — six to twelve weeks conventionally, and longer where CMHC is involved. Building that into your purchase conditions is the difference between a firm closing and a scramble for an extension.