MLI Select Is an Energy Project With a Mortgage Attached
On an existing building, the energy work decides the amortization. Price it before the loan.
On an older rental building, the energy work decides how much MLI Select will lend, so price the retrofit before you price the debt.
Most small owners talk about MLI Select (CMHC’s points-based multifamily insurance program) as cheap debt. In practice the rate is the least interesting part. The program pays out in amortization, and amortization comes from points.
How it works on existing buildings: 50, 70 or 100 points unlock amortization of up to 40, 45 or 50 years. Points come from three areas: affordability, energy efficiency and accessibility. Energy reductions of 15%, 25% or 40% earn 20, 35 or 50 points. Minimum debt coverage is 1.10x at every level.
On an older building, the three areas aren’t equal. Affordability points need at least a 10-year commitment on rents, which follows the building to exit. Accessibility is hard to retrofit into older stock. Energy is usually the cheapest and least binding path.
Here’s what that’s worth. Take a building with $300k of NOI and a ~4% rate. At 1.10x coverage:
- 25-year amortization supports ~$4.3MM
- 40-year supports ~$5.5MM
- 50-year supports ~$5.9MM
The 40-year tier adds ~$1.1MM of proceeds at the same coverage. The building is the same. The difference comes from the energy work.
Figures are illustrative and rounded; actual sizing depends on the lender, the rate and the building.
The 40-year tier adds ~$1.1MM of loan on the same NOI. Loan supported at 1.10x DCR by amortization, on $300k NOI at a ~4% rate. On existing buildings, 50, 70 and 100 points unlock 40, 45 and 50 years.
Illustrative; rounded. Monthly payments, Canadian semi-annual compounding. Point thresholds: CMHC, MLI Select.
Two things follow from that.
First, the loan is sized by whichever test binds first. In the example the 40-year loan lands around 82% of value at a 4.5% cap rate. At 50 points the program also caps loan-to-value at 85%. Above roughly a 4.7% cap rate, that cap binds before coverage does. In Metro Vancouver, the inputs that matter are usually NOI and rate. In secondary markets, where cap rates run higher, the appraisal often decides proceeds.
Second, the retrofit is a capital project with its own budget, schedule and risk. Heat pumps, windows and envelope work on an older building can run to a meaningful share of the purchase price. They need to be underwritten like any other capex: quotes, contingency, disruption to tenants. The common mistake is sizing the loan first and pricing the points later.
So I build the model in that order: energy scope and cost, then points, then amortization, then debt. If the deal pencils at 25 years, the extra proceeds are just a bonus. If it only works at 50 years with an affordability covenant, I want to know what that covenant does to the exit buyer pool before I commit.
The open question is whether the energy reductions hold up after the work is done, and what that means at the next refinance.