Submitted by Eric and Phil on behalf of Planning and Development Committee
Planning and Development would like to revits our mortgage now that we are nearly two years into a five year term. Here is a quick recap:
Exit our original “high interest” mortgage with CMHC – enter a more favourable arrangement with First Calgary Financial
With support of CMHC’s refinancing program, Sunnyhill was able to exit its 10% CMHC mortgage in June of 2018 without a pre-payment penalty. As such we moved the remainder of our original mortgage over to First Calgary who SACHA had worked with to secure preferred financing for housing co-operatives.
The terms of our mortgage are as follows: $1,802,000.00 at 4.15% for a five-year term, amortized over 20 years. The mortgage we have with First Calgary was approved by membership, vetted by our lawyer, and is saving us $65,000 every year in interest payments compared to the previous CMHC mortgage. Under normal circumstances Sunnyhill would renegotiate a new interest rate at the end of the five year term.
Three conditions to keep in mind
At the time of negotiating the mortgage Mark Terrell was unofficially told by First Calgary that for Sunnyhill to receive a better interest rate in the future, Sunnyhill would need to make improvements to our infrastructure. The other options are to supply the necessary documentation indicating that we have a financial plan AND/OR are in the process of hiring contractors to do this work.
These improvements are items that were identified in the Building Condition Assessment that Planning and Development commissioned in 2018. The improvements include:
Balconies - inspected and proven to be safe or replaced according to new codes
Windows - replaced as the windows we have are now considered unsafe
Roof - that means plans to replace the roof as per a maintenance schedule as indicated in BCA or asset management plan
What to make of these conditions
These items were mentioned by the bank anecdotally, because they are a liability. If these items were to fail, Sunnyhill could potentially be sued, the co-op could go bankrupt, and the bank would therefore not receive a return on their investment. That is why our current interest rate might seem slightly higher than other five-year mortgages. We are being penalized because of the condition of our buildings.
Correcting a misunderstanding
Sunnyhill will qualify for a future mortgage with First Calgary regardless of whether or not it meets the conditions related to the balconies, windows and roof. That is to say, if the above-mentioned work is not considered or completed then we may still obtain financing but it will be at a higher interest rate. This corrects a misunderstanding in play that Sunnyhill would not qualify for a subsequent mortgage and that, worse, we would be on the hook to repay the remaining balance in 2023.
What the financing pathway looks like from this point forward
Planning and Development undertook a conservative 60-year analysis with Communitas on a rehabilitation-only scenario.
In the analysis we looked at two different lending scenarios (meaning no grants). In both scenarios the rehabilitation of our buildings cost approximately $8,200,000- $10,000,000. In the analysis, the cost of rehabilitation was within range of what we can afford as a membership with no other external support.
Now, compare this to the recent studies that Urban Matters has completed and you will note that their rehabilitation scenario has planned for approximately $100,000 per unit. Putting the early estimate for rehabilitation at $6,600,000. (Bear in mind, this estimate does not factor the cost of a new low rise).
What this tells us is that, with a mortgage-only scenario Sunnyhill should be in a position to rehabilitate our buildings either through a straight-ahead bank mortgage (say with First Calgary) or through one of CHMC’s different financing programs.
Factors to consider at this point at this point
It is critical that we take First Calgary’s liability assessment of Sunnyhill’s infrastructure seriously. We must be in a position come 2023 where Sunnyhill has completed the rehabilitation of our buildings, or at the very least, has a documented plan.
As it happens, the work that Planning and Development is doing with Urban Matter’s effectively addresses the matters of concern. We are currently working on Phase 2 of a planning process with Urban Matters that will see us develop a fully costed plan.
There is every indication that this costed plan would satisfy First Calgary should we choose to work with them in the future. Our expectation is that with this plan along with the extended lease or land purchase that we anticipate from the City, we will be in position to “shop” around for the best financing options. And from our current vantage point it seems there will be options that range from (best to worst): CMHC’s grant/lending programs under the National Housing Strategy, a third-party lender (New Market Funds or Housing Investment Corporation, for example), or a bank/credit union.
Questions? Concerns?
Please get in touch directly with us, pose a question/comment in the newsletter, or share your concern at the next membership meeting. It is important that we continually scrutinize the steps we are taking on our financing to make sure we are being prudent and strategic.
