Commercial real estate financing in Western Canada is still accessible, experts say, but today’s higher level of lender scrutiny means borrowers may need to get creative and put their best foot forward.
Lenders are cautiously active, driven by lower interest rates on one hand and macroeconomic and geopolitical uncertainty on the other. As a result, multi-family and industrial are seeing greater interest, as refinancing drives more activity than new development or acquisition.
“Capital is still moving, but it’s flowing into a narrower set of opportunities,” said Jessica Toppazzini, vice-president and managing director, Western Canada, with mortgage services company CMLS Ltd. “The difference is no longer access— it’s how the deal is structured, who’s leading it, and whether it can stand up to today’s scrutiny.”
Five years ago, the landscape was different, she said. Amid a global pandemic, interest rates were at historic lows and capital was widely available. Business uncertainty was the main challenge, rather than liquidity.
Now, the climate is more “nuanced,” she said. Lender concern about interest-rate risk has declined, but global events, tariff tensions and economic recession are now the top worries.
“Lenders are engaged, but the bar is higher,” Toppazzini said. “In this environment, having the right team and a clearly defined strategy is essential to getting a deal across the line.”
Some asset classes are currently more attractive to lenders than others, she said. For example, multi-family continues to lead, with lenders focused on quality of sponsor, quality of asset and reasonable underwriting assumptions.
Industrial continues to attract lender interest, with increased focus on tenant quality, rollover risk and long-term demand, she said.
Well-anchored retail also remains active, but office is particularly challenged, with lenders narrowly focused on institutional-grade buildings in top-tier markets with long leases and minimal near-term risk, she said.
While there is no reliable data about total capital availability in Western Canada, especially when factoring in private equity, market research firm Altus Group Ltd. said investment sales in Vancouver, Edmonton and Calgary totalled $4.1 billion in the first quarter of this year, up from $3.8 billion a year earlier and on par with $4.2 billion in the first quarter of 2023.
Robert Santilli, valuation advisory director with Altus, said some dealmakers are using alternative arrangements.
“We’ll see more creative arrangements for enclosed malls than you’ll see in other asset classes, but certainly vendor take-backs, mortgage assumptions, we’re seeing more of those than we would have seen pre-pandemic,” he said.
Santilli said Alberta is drawing significant investor interest due to its population growth, wages and insulation from U.S. tariffs. He also said that across the board, affordability is a big plus.
“If you’ve got an industrial property with long-term leases in place, if you’re a mid-market apartment building that’s fully leased, you’re going to be viewed much more favourably than something that’s sort of high-end where the rents are much more unaffordable,” he said.
Hospitality may be another bright spot.
“This has been the healthiest time for accessing liquidity for hotels that I’ve seen,” said Trevor Scott, managing director, Western Canada, with advisory firm CFO Capital.
CFO recently financed the 245-room Holiday Inn & Suites Vancouver Downtown by InterContinental Hotels Group PLC.
The 139,892-square-foot, L-shaped hotel is comprised of three towers on 0.69 acres and includes 143 underground parking stalls.
Though deal terms remain under wraps, Scott said CFO operates by tendering lenders who have an appetite for hotels and then customizing debt structures to fit the borrower, market, asset and deal type, whether it be construction, term or acquisition.
Scott said he’s bullish on primary markets like Victoria and Vancouver, and secondary markets like Tofino and the Okanagan. Yet hotels are a different animal, he said, with high barriers to entry and special requirements for branding, management and operation.
“Construction costs are high, and opportunity costs for highest and best use of a piece of land make hotel development challenging,” he said.
