The panelists noted that due to COVID-19 there have been fewer financing and construction applications. Pro forms are used to calculate project costs to determine whether a project is viable for development or not (Kiefer Maracle discusses pro formas in more detail in his blog post). The Pennyfarthing Homes panelist explained that it is difficult to have faith in a pro forma right now because of the uncertainty that COVID-19 brings. Construction costs have risen due to reliance on materials being shipped from overseas and fewer trades working on sites because of safety concerns, delaying projects and increases costs. Without certainty in a pro forma it is difficult to invest millions of dollars in capital on a project.
However, the panelists agreed that the construction cost premium will likely only last for a few months. Once a new “normal” has been established the costs will decrease – and they believe that we have begun to enter this time period.
The RBC panelist stated that the bank was no longer looking for new clients, instead focusing on existing ones. While fewer applications are being received, he noted that financing was still available and being approved with low interest rates. Comparatively, the BTY Group noted in their research that there is greater scrutiny from lenders for new projects and an increase in premiums to cover potential risk. However, this scrutiny is likely for projects with higher risks, such as the luxury condos discussed earlier. Smaller, more affordable projects that are purpose built rental likely will not have difficulty receiving loans.