Commercial Mortgages in Vancouver: The Building Carries the Loan

How is commercial underwriting different from a residential mortgage?

Residential underwrites the person. Commercial underwrites the property. The building carries the loan.

On the residential side, the questions are your income, your credit and your debt ratios. On the commercial side, the first question is what the property collects in a year, what remains after vacancy and operating expenses, and how much room that leaves above the debt payments.

Your own situation still matters, it just comes second. If the building's numbers do not work, a strong personal profile will not save the file. If the numbers are strong, an ordinary personal profile is often workable.

What do lenders mean by NOI and DSCR?

Net operating income is annual rental revenue, less a vacancy allowance, less operating expenses. Operating expenses cover property tax, insurance, management, repairs and common area utilities. Mortgage payments and depreciation are not deducted, they sit one layer down.

Debt service coverage ratio is NOI divided by total annual debt payments. Most institutional lenders want to see something above roughly 1.2 to 1.3, for illustration only, and the requirement varies by lender and by asset class. A ratio of 1.0 means breaking even, and nobody lends at break-even.

Two details catch people out. First, most lenders impute a management fee even if you manage the building yourself, so that NOI is not artificially inflated. Second, a vacancy allowance is generally applied at market norms even when the building is fully leased today.

The practical effect is that your own NOI figure is usually higher than the lender's. Re-run it on conservative assumptions before you submit, rather than arguing about it afterwards.

What changes when the property is held in a corporation?

Nothing problematic. Corporate ownership is the norm in commercial lending, and many lenders prefer a single-purpose entity holding just that one property, because the structure and the liability are clean.

Expect to provide corporate financial statements, incorporation documents, the shareholder structure, and personal guarantees from the principals. Fully non-recourse lending is uncommon in Canada, so in most deals you will still be signing personally.

If the company is newly formed with no financial history, underwriting leans harder on the shareholders' net worth, credit and track record. You can prepare that package in advance rather than waiting to be asked.

Multi-unit, retail, office, industrial — are they underwritten the same way?

No, and the differences are large. Residential buildings of five units and up generally go through the commercial channel, and they are usually the easiest asset class to finance because demand is steady and the cash flow is spread across many tenants.

Qualifying multi-unit projects can also access CMHC insured products such as MLI Select. That generally means higher leverage and longer amortization, in exchange for a longer process and additional commitments around affordability, accessibility or energy efficiency.

Retail and office turn on tenant quality and the remaining term on the leases. A storefront with ten months left on its lease and a building with a national tenant eight years from expiry are two entirely different files.

Industrial demand in Metro Vancouver has been strong and the asset finances well, but the environmental history has to be clean. Sites that once held a gas station, an auto shop, a dry cleaner or a plating operation tend to make the environmental stage harder than expected.

How much down payment does a commercial property need?

Generally more than a home, and the exact figure is not a fixed percentage. It falls out of the asset type, the location, the lease quality and the DSCR together. Multi-unit residential typically supports the highest leverage in the market and special-purpose assets such as hotels, gas stations and care homes the lowest.

Here is the counterintuitive part. The binding constraint is often DSCR, not loan-to-value. If the net income cannot support the payments, the lender will not advance to the loan-to-value limit even when that limit has room. In a higher-rate environment this is the usual outcome.

So asking what percentage you can borrow tends to miss the point. The more useful question is how large a loan this building can carry at today's rents and today's pricing.

What documents and third-party reports will you need?

On the property side: a rent roll, every lease, two to three years of operating statements, the property tax notice and the insurance policy. Disclose renovation or vacancy history rather than letting it surface later.

On the borrower side: corporate financial statements and tax filings, incorporation and share registry, and personal net worth statements and credit for the principals. If you have operated a comparable asset before, put it in writing, because experience counts in underwriting.

Third-party reports generally include a commercial appraisal, a Phase I environmental site assessment, and sometimes a building condition report. If Phase I flags a concern, a Phase II follows, and both time and cost go up.

You pay for these reports, and they usually have to come from firms on the lender's approved list. Do not commission them on your own before checking.

How long does a commercial mortgage take?

Considerably longer than residential. Several weeks to several months is normal, depending on asset type, how quickly third-party reports can be scheduled, and how many layers of internal approval the lender has. CMHC-related applications generally take longer still.

The time goes into two places: report scheduling and credit committee. You cannot rush either, you can only start earlier.

Build that into the subject removal period when you write the offer. The most common failure I see is not a declined application. It is a condition period too short for the reports to come back.

The bank said no. Is that the end of it?

Usually not. Banks, credit unions, mortgage investment corporations and private lenders each have their own appetite and their own list of things they will not touch. A bank declining often means the asset falls outside its internal policy, not that the deal does not work.

The cost of the alternative route is generally a higher rate, higher fees and a shorter term. That cost needs a reason behind it before it is worth paying.

The sensible use is as a bridge: take the property down or stabilise it with more expensive money, spend a year or two signing leases and firming up the numbers, then move back to cheaper capital. Decide on that exit before you borrow, not after.

One page per property type — go straight to yours

In commercial lending, property type decides almost everything: the lender list, the leverage, the rate, the document pile. So I wrote the ones I do most as separate pages, each covering only that type’s mechanics: multi-family (5+ units), retail & plaza, office & industrial, hotel & motel.

Money for building and money for the business itself each have a page too: construction mortgages and business loans. Not sure which one you are? Call me — it takes one sentence to sort.

Common questions

Can I use the equity in my home as the down payment?

That's a common approach, usually done through a refinance or a HELOC on the residential property. It's worth being clear-eyed about what this actually does, though: the new payment you take on lands directly in your personal debt ratios, and factors into the overall assessment of the commercial deal, so it isn't free capacity you're pulling from nowhere. Using home equity this way can absolutely work, but it changes your personal financial picture at the same time it funds the commercial purchase, and both sides of that trade need to be counted together, not evaluated separately.

How long are commercial terms and amortizations?

Generally shorter than residential mortgages on both counts — terms and amortizations alike — and how much shorter depends heavily on the asset type, the strength of the lease profile, and which lender you're working with. This isn't a single fixed rule across all commercial property; a well-leased multi-unit residential building is treated very differently from a single-tenant industrial property with a shorter remaining lease term. Multi-unit residential typically gets the longest amortization available among commercial asset classes, which is one reason it's often the easiest commercial category to finance well.

Is a mixed-use building residential or commercial?

Most mixed-use buildings are underwritten as commercial, though where exactly a specific building lands depends on the unit count and the proportion of residential versus commercial floor area within it. This classification matters more than it might seem, because it determines which lending rules, rates, and amortization ranges apply to the whole building, not just the parts that are actually commercial. Some lenders treat a mixed-use building that's heavily residential closer to a standard residential product instead, which can mean meaningfully better terms — so it's worth asking each lender specifically how they'd classify your particular building rather than assuming the answer is uniform across the market.

Are there prepayment penalties on commercial mortgages?

Yes, and the calculations are generally harsher than what you'd see on a residential mortgage — often something like a yield-maintenance formula, which is designed to make the lender financially whole for the interest they would have earned had you kept the loan for its full term. This can turn into a genuinely large number if rates have moved since you signed, which is exactly the scenario where people are most likely to want out early. If there's any real chance you might sell or refinance mid-term, get the exit clause priced and explained in plain language before you sign, not after you're already looking for a way out of it.

What if my own business occupies the building instead of tenants?

That's classified as owner-occupied commercial, and it changes what the lender actually looks at. Instead of assessing tenant leases the way they would for an investment property, the lender examines whether your business's own operating cash flow can cover the mortgage payments — the same underlying logic as rental income covering a payment, just with your business standing in as the income source instead of a tenant. Because of this, be ready to provide corporate financial statements and business tax filings as a central part of the application, not a supporting afterthought — they're doing more work in this kind of file than the property itself.

How much does a commercial appraisal cost and how long does it take?

More expensive and slower than a residential appraisal, and the cost scales with the size and complexity of the property, so there's no single number that applies across every file — a small strata commercial unit and a large multi-tenant industrial building are not priced or scheduled the same way. This step is worth asking about specifically before you submit your application, because it's often the slowest part of the entire commercial financing timeline, not the underwriting or the paperwork. If your deal has a tight closing date, getting the appraisal booked early is usually more important than anything else you can control in the process.