Canadian lenders may be reassessing the urgency of decarbonization, but they still express enthusiasm for the sustainable assets and impact investments that appear to be losing cachet in the United States. Recently released findings from CBRE Canada’s annual survey of lenders’ attitudes and intentions toward commercial real estate reveal generally diminished expectations that buildings’ greenhouse gas (GHG) emission profiles will have a material impact on financing conditions in the near term.

Yet, while sustainability is not a ranking must-have, there is evidence that it’s a preferred attribute. More than 40 per cent of survey respondents currently offer better credit spreads, averaging out at 8 basis points, for assets with sustainability credentials such as LEED or BOMA BEST certification, and an additional 19 per cent say they will begin doing so in the near future.

“There is a bit of a disconnect here,” acknowledged Joshua Sonshine, a CBRE senior vice president, as he highlighted some of the survey results during a late February presentation in Toronto. “Basically, it pays to have sustainability-focused assets, but, no, the lack of those credentials won’t stop you from getting financing.”

Meanwhile, on the social benefits side of the equation, 86 per cent of surveyed lenders are looking to increase their budgets for CMHC-insured (Canada Mortgage and Housing Corporation) construction loans for purpose-built rental housing this year. That’s a category in which there has been robust developer uptake of the MLI Select program to support affordable, accessible and energy-efficient supply.

Improved outlook on most asset classes for 2025

The latest edition of the annual survey was conducted between Dec. 10, 2024 and Jan. 20, 2025, drawing input from 37 institutions — including domestic and foreign banks, credit unions, insurance companies, pension funds and private debt capital — that collectively hold more than $200 billion in commercial real estate loans. This year, 76 per cent of respondents plan to originate more loans, with 24 per cent targeting at least a 20 per cent year-over-year increase in capital deployed to commercial real estate. As well, lenders report an improved outlook on almost every asset class except for development land and high-rise condominiums.

Turning to asset characteristics, a larger share of respondents — 17 per cent versus 11 per cent in late 2023 — report that buildings’ carbon footprints already have a material impact on the availability of capital and mortgage terms. However, 47 per cent suggest that sustainability factors will not affect their decision-making for at least five years or perhaps not at all. As well, no respondents foresee material impacts on mortgage terms within the next two years, even though nearly 20 per cent made that prediction in the previous two annual surveys.

Among those who expect GHG emissions profiles will influence debt availability and mortgage terms before the end of this decade, just 11 per cent envision a significant impact while the larger share expect a limited to moderate impact. CBRE’s capital market specialists hypothesize that Canadian lenders are now taking more cues from the U.S., where the new federal administration shows little sign that it will push financial institutions to address physical or transitional climate risk, than from Europe, which has long been upheld as a harbinger of what’s looming on the regulatory front.

“As much as European lenders continue to ratchet up sustainability requirements, it just doesn’t seem like those practices or expectations will be a reality in Canada for many years,” Sonshine mused.

“These results also align with CMHC’s announcement in June of 2024 that the allocation of points available under the MLI Select’s energy efficiency criteria would be reduced in new rental construction,” observed his co-presenter, Jessica Harland, also a senior vice president at CBRE.

CMHC’s MLI select program galvanizes purpose-built rental production

Under the MLI Select program rules, prospective borrowers must achieve at least 50 points through any combination of designated options for affordability, accessibility and/or energy efficiency in order to secure loan insurance. At 50 points, they are eligible for backing for up to a 95 per cent loan-to-cost (LTC) ratio on the housing portion of a project (up to 75 per cent LTC on the non-residential component) with an up to 40-year amortization period. That jumps to a 45-year maximum amortization at 70 points and to 50 years at 100 points.

Currently, loan candidates can achieve a maximum of 100 points for affordability, a maximum of 50 points for energy efficiency and a maximum of 30 points for accessibility. Joining the presentation proceedings to provide more context, CMHC’s president and chief executive officer, Coleen Volk, characterized the program as both anomalous with the agency’s mandate to be a commercial supplier of insurance and a purposeful business deviation to try nurture more housing supply.

“We stand by that decision, but it has complicated our world because we are trying to operate a commercial enterprise with a very explicit policy element to it,” she maintained. “Now that we have this, the industry is greatly relying on it. It’s been very important to the purpose-built rental that has been built over the last little while.”

Rob Kumer, chief executive officer of KingSett Capital, underscored that fact in an associated panel discussion. He calculates that roughly $280 million raised through his firm’s affordable housing fund will translate into $2.5 to $3 billion worth of development because projects can be so highly levered.

“There’s a whole bunch of things going on in affordable housing that actually make a lot of sense. We’re finding a lot of success,” he said. “It’s taken us awhile to get here because, with every deal, you sort of start from scratch. You work with the City, the Province, the Feds, CMHC to try to put together a structure that makes sense and put you in a spot where you can get going, but, ultimately, you can find ways to be creative and make money in these projects.”

Volk expressed hope that others will catch on to the possibilities.

“Multiples is a huge business and it’s been growing by leaps and bounds. Wearing the social policy hat at CMHC, I say: I am so happy to see that growth and I am so happy to see that supply. As the insurance provider, I say: It would be so nice if we weren’t the only game in town,” she advised. “It would be great if we could see conventional players come in.”