What are the latest developments in Canada's commercial space?

Executive runs an eye over the sector's challenges and opportunities

What are the latest developments in Canada's commercial space?

Throughout a turbulent year in the commercial mortgage sector to date, many challenges remain – but equally, opportunities for mortgage brokers and their clients to avail of, according to a leading executive in the space.

Stephanie Kowalew (pictured), founder of the Quebec-based Effet Papillon Financement, told Canadian Mortgage Professional that while interest rate hikes and market volatility presented a significant hurdle for commercial borrowers, certain asset classes had proven extremely resilient, such as multi-unit property types.

“[Investors] are keeping their heads above water and they understand that this is going to be a bit tough sailing for the next couple of months, maybe even years,” Kowalew said. “So this is, I think, the main challenge – but because of the type of clientele that we have, they’re facing it very strong and very well.

“In terms of opportunities in the commercial sector at the present moment, I think a lot of people are still very interested in multi-unit or industrial types of properties – maybe less in the office space, unless it’s some conversion product.”

For brokers, the potential to demonstrate true value to clients by helping them navigate the stormy commercial landscape is clear.

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“For the good brokers out there, it’s a great opportunity to come out of it very, very strong by providing really good advice and also listening to what their needs are and finding the right products,” Kowalew said.

“It’s really interesting because lenders are more selective – so when lenders are more selective, it’s a nice space for commercial brokers to step in because people are not being served as well as they were when things were easy.”

That market volatility in the commercial sphere is likely to continue in the coming months, she said, especially with geopolitical factors weighing heavily on Canada’s economic recovery from the COVID-19 pandemic.

That unease was mentioned in the Bank of Canada’s most recent statement on its benchmark policy rate, on September 7, which listed the ongoing impact of COVID-19 outbreaks, supply chain snarls and Russia’s invasion of Ukraine as negatively impacting growth and pushing prices upwards.

China faced “ongoing challenges” from COVID-related lockdowns, the Bank said, while commodity prices continued to fluctuate unpredictably with oil, wheat and lumber prices steadying while natural gas prices spiked.

Among Kowalew’s particular areas of focus at present is MLI Select (APH Select in French), a program that allows successful applicants to access longer amortization periods and lower premiums as an incentive for fulfilling affordability, accessibility and climate-related goals in multi-unit development projects.

Introduced in March by Canada Mortgage and Housing Corporation (CMHC), that program offers incentives for both new construction and existing properties, with applicants able to focus on a single area – for instance, affordability – or combine commitments to maximize the points and incentives they receive.

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Of critical importance for brokers in the commercial sector is keeping aware of the ever-developing news cycle, Kowalew said – staying informed and bringing the best possible advice to clients.

“I think really keeping track of what’s going on in the world and its impact on the economy [should be top of mind],” she said. “Speaking also to other lenders, the financial planners, what they’re seeing, what they’re forecasting – so really being sharp in new information and how it can impact your client.”

Products that allow forward fixing of rates are especially advantageous amid the current uncertainty, she said. “That’s another way to kind of face this volatile market – that you… get a say in when to lock rates. We tend to favour more those kinds of products.”

The outlook for the commercial sector remains unpredictable, with plenty of twists and turns expected in the coming months. Still, Kowalew emphasized the importance of understanding that trends in the space are cyclical, with ups and downs a staple of the space.

Her overriding message? “Just be fearless when the market is fearful,” she said. “It’s not necessarily a bad year when you look at the bigger picture, and especially on the commercial side, you’re in it for the long run.

“A bad year doesn’t mean it’s going to be bad for the rest of your investment period. So just hang in there – it’ll be OK. It’ll pass and we’ll forget about it sooner rather than later.”