June 16, 2014 release

MONTHLY KEY RATE & MARKET COMMENTARY
Debt Capital Markets Canada
Key Rates
Commercial Mortgage Rates*
Key Rates
A Deal
B Deal
C Deal
16-Jun-2014
3 year
3.05%
3.50%
4.00%
CAN/USD Exchange Rate
0.922
5 year
3.25%
3.75%
4.50%
Business Prime Rate**
3.00%
10 year
4.00%
4.30%
N/A
30 Day BA
1.18%
2 year
3 year
5 year
7 year
10 year
long-term
14-May-2014
104 bps
113 bps
156 bps
188 bps
228 bps
283 bps
21-May-2014
105 bps
114 bps
156 bps
189 bps
230 bps
284 bps
28-May-2014
104 bps
111 bps
150 bps
182 bps
222 bps
276 bps
4-Jun-2014
106 bps
116 bps
161 bps
195 bps
235 bps
286 bps
11-Jun-2014
107 bps
117 bps
160 bps
193 bps
234 bps
286 bps
Selected Benchmark Bond Yields
5 Week Trend
Source: Ba nk of Ca na da
*Subject to devi a tion of 10-20 bps dependi ng on covena nt a nd dea l qua l i ty
Market Commentary
JLL Debt Capital Markets group recently did a market survey of the Canadian term and construction debt landscape to measure
the size of the outstanding balances and new origination volumes by supply source.
The Canadian big five banks in 2013 had on average an increase of 13 percent in their production levels, compared to 2012 levels.
Life insurance Companies’ origination levels also demonstrated an overall robust years, however, their production over the last 25
years seems to have dropped vis-à-vis Banks and Credit Unions. BNS and RBC are lending aggressively to their franchise
customers and are doing 65% LTV deals at around 200 BPS while CIBC and TD are more conservative in the overall profile
lending at a lower threshold of 55% to 60% LTV at a pricing that is in the range of 190-230 BPS. LBC is not competitive on term
product but National is (for franchise clients). On the Life Co. side, GWL and Standard Life are still chasing top tier assets with a
focus on Grocery Anchored or large trophy type Office tower covenanted deals with very sharp spreads – as low as 160 BPS.
Manulife and Sunlife on the other hand are often the next tier with IA, Desjardins and others right behind them.
CMBS lenders originated around $500 million in 2012 and saw their production levels go up to $1.5 billion in 2013. We are
expecting CMBS new origination to hit north of $2B in 2014. There are 5 CMBS lenders active in the market at present: MCAP,
IMC, RossPoint, RBC and CMLS.
We find several foreign lenders like SBI, ICBK, BoC, KEB, DB, PL, PacLife, RJ and at least 5 others will do deals that are
competitive on LTV and at same or better spreads than Canadian Banks and Life Co’s. CU networking that includes almost 50
lenders has been doing very competitive lending as well. Leaders in this bucket have been CWB, CC, Citizens, FC, Servus, ATB,
Meridian, PWB, Alterna, EB, FO, CP and others.
On the multi-family side, given the 80 bps discount of Canada Mortgage and Housing Corporation’s (CMHC) insured multi-family
financings, there has been a very strong demand for this product. However, CMHC has enacted a cap to limit the amount of new
National Housing Act Mortgage-backed Securities (NHA-MBS) per issuer and as a result this is the only sector of CREF that will
see a relatively higher pressure on mortgage coupons, we also expect further regulatory changes restricting available capital to this
sector. We find that it’s a lot easier to do term deals on Multi-family product than CMHC insured product given a much wider gap on
leverage.
At JLL, Debt Capital Markets (DCM) group, we track over 110 sources (the five biggest banks, tier 2 banks, foreign lenders, life
insurance companies, pension funds, credit unions, trust companies, MICs, Mezz Funds and other foreign lenders) of debt capital
available to Canadian borrowers across different lender types. Almost all of the suppliers of capital have expressed an interest to
lend at the same or higher levels than 2013.
The overall new production levels have steadily climbed over $39 billion in 2013, including approximately $1.6 billion in CMBS
issuance. The entry of additional CMBS lenders will certainly swing the pendulum further in the borrower’s favor.
2013 Commercial Mortgage Balances ($175 Billion)
Life Insurance
Companies
18%
Credit Unions
19%
NHA MBS
Multi-Family
13%
Trusts and
Other
Institutions
7%
CMBS
5%
Pension Funds
Foreign9%
Chartered
Banks
23%
2013 Origination ($39 Billion)
Life Insurance
Companies
18%
Lenders
5%
NHA MBS
Multi-Family
20%
Trusts and
Other
Institutions
8%
Credit Unions
9%
Chartered
Banks
14%
Debt Capital Markets
Jones Lang LaSalle
199 Bay Street
Suite 4610, Box 407
Toronto, ON M5L 1G3
CMBS
4%
Foreign
Lenders
10%
Amar Nijjar, B.Eng, MBA
Vice President & Practice Lead
tel +1 416 363 8964
mobile +1 647 992 9811
[email protected]
Pension Funds
16%
Chad Gemmell, MBA, LEED AP
Director
tel +1 416 238 5935
mobile +1 416 886 3404
[email protected]
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