Investors should strike now as lower interest rates and lender appetite create opportunities
As interest rates continue to ease, commercial real estate investors have a window of opportunity to capitalize on favorable financing conditions, says Brennan Yadlowski, principal and managing director at Avison Young Canada.
“It’s always a good time to invest in real estate when financing or debt is cost effective relative to capitalization rates. And now we are currently getting close to pre-pandemic interest rates,” Yadlowski said.
In a recent Q&A, Yadlowski discussed how investors and real estate owners can capitalize on current market dynamics, while also noting the important role of mortgage brokers and the shifting preferences of lenders across asset classes.
Favourable rate environment
Yadlowski pointed to compressed fixed and variable interest rates as a key driver behind renewed acquisition and refinancing activity. Fixed-rate commercial loans are generally priced over the Government of Canada (GoC) bond yields, which have declined compared to 2023 and early 2024.
Likewise, variable rates, linked to the prime rate, currently at 4.95%, are down significantly due to seven prior rate cuts from the Bank of Canada (BoC).
“Low interest rates are a strong indicator for commercial real estate investment activity, as financing and resulting cost of capital for investors are more favourable,” he explained. “We're in a more favourable interest rate environment this year.”
Despite recent economic volatility and ongoing tariff concerns, Yadlowski believes now is a strong window for refinancing or new acquisitions, especially as rates trend closer to pre-pandemic levels.
While CMHC-insured loans remain a key driver for multifamily development, the report highlights growing interest in conventional loans due to tightened CMHC lending parameters introduced in fall 2024.
CMHC-backed construction loans can offer up to 95% loan-to-cost, but Yadlowski explained that the agency now withholds 10% to 15% of leverage until projects are complete and stabilized. This delay has led many developers to consider banks, credit unions, and private lenders offering 75% loan-to-cost without the CMHC’s lengthy approval process.
“Developers or investors who complete their construction financing with conventional loans can still apply to CMHC to insure the takeout or permanent term financing upon completion of the project,” he added.
Lenders still active, but more selective
Yadlowski said lenders have not fully tightened underwriting standards, though they are asking more detailed questions, particularly around tariff exposure. He noted that there is still plenty of capital available for retail, industrial, and multifamily properties, with increased interest in retail and select office assets as lenders seek to diversify portfolios.
“Expect lenders to be asking more questions, to better understand each borrower’s exposure to tariffs,” he said.
Looking ahead, many lenders expect two or three more BoC rate cuts in 2025, with a potential for a 50-basis-point reduction over the next six months. This would push the prime rate below 4.50%, making construction and variable-rate acquisition loans more cost-effective.
Yadlowski expects strong lender appetite for CRE debt to continue throughout 2025, particularly for acquisitions, refinances, and developments in retail, industrial, and multifamily sectors.
“My outlook is that this will continue in the second half of 2025, and investors or real estate owners should have availability of debt capital for their commercial properties,” he said.
‘Brokers can make huge difference’
Given ongoing portfolio recalibrations and asset repricing, Yadlowski said commercial mortgage brokers are more valuable than ever.
“Mortgage brokers can make a huge difference in this type of environment,” he said. “They have a deep understanding of lenders’ credit underwriting parameters, interest rate pricing, and lenders’ appetites.”
Read next: 'The gold beneath your feet': Mortgage brokers' big opportunity in 2025
Brokers not only identify the best lender-borrower match but also help underwrite properties accurately, including conducting sensitivity analyses on interest rates, capitalization rates, and lease terms.
“Investors may believe they have the lowest possible interest rate available with their current lender, but when you can create a competitive situation… it's always beneficial,” Yadlowski noted.
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