By Matt Gonsalves
Vice President, Mortgage Lending, Foremost Financial
By Matt Gonsalves, Vice President & Broker – Mortgage Lending, Foremost
Financial
I recently had the opportunity to join Ehren and Josh on the BLD Financial Podcast for a
wide-ranging discussion about construction financing, private lending, CMHC takeout
strategies, and the future of missing middle housing in Ontario. It was a great conversation because it focused on a part of the market that is becoming increasingly important: small and mid-sized infill development. For years, much of the housing conversation in Ontario has focused on either high-rise condominiums or traditional single-family homes. But in many established neighbourhoods, the opportunity is somewhere in the middle. Fourplexes. Sixplexes. Garden suites. Multiplex condominiums. Small purpose-built rental buildings. These projects can add much-needed housing in existing communities, close to transit, schools, parks, and employment. They can also create a housing product that feels more like a home than a small condo unit in the sky.
The opportunity is real.
But the execution risk is also real.
The Sweet Spot in Today’s Market
In today’s market, many larger projects have become difficult to make work. Hard costs have increased. Approval timelines remain challenging. Development charges, site plan approval, underground parking, professional fees, and longer construction periods can make larger projects much harder to pencil. That is one reason smaller infill projects have become so interesting. In the right location, a multiplex or small rental project can benefit from a more manageable construction timeline, simpler building form, and, in some cases, development charge exemptions. But “smaller” does not mean “easy.” A sixplex can still be a complicated construction project. The builder still needs to manage trades, budgets, permits, inspections, insurance, HST, soft costs, interest, and delays. The numbers may look attractive in a spreadsheet, but construction has a way of exposing weak assumptions.
Financing Is About More Than the Interest Rate
One of the biggest mistakes I see borrowers make is focusing only on the interest rate. Rate matters, but in construction financing, structure matters just as much.
A borrower needs to understand:
How will advances be calculated?
When will draws be available?
What documentation is required?
How will interest reserve be handled?
What happens if costs increase?
What is the takeout strategy?
Does the lender have the capital available to fund the project through completion?
The goal is not simply to get a commitment letter. The goal is to have a financing structure that works from acquisition through completion and takeout. A borrower should know what money they can expect, when they can expect it, and
what conditions need to be satisfied before each advance.
That clarity matters.
Liquidity Is Often the Missing Piece
Many new developers underestimate how much cash is required to complete a project. It is not enough to have the minimum equity required by the lender. You also need liquidity. That means cash available for timing gaps, deposits, cost overruns, interest, soft costs, HST, permits, insurance, and unexpected delays. This is where many projects run into trouble. A builder may need to pay a contractor before the next draw is available. Windows or mechanical systems may require deposits before they are physically on site. A lender may not be able to advance against materials that have not yet been installed. On paper, the project may still be fine. In practice, the borrower may be short of cash at the worst possible time. That is why proper capital planning is critical.
The projects that work are usually not the most aggressive ones. They are the ones with realistic budgets, proper contingency, strong partners, and enough liquidity to handle
problems when they arise.
CMHC Takeout Financing Has Changed the Market
CMHC takeout financing has become an important part of the missing middle housing
conversation. For many small purpose-built rental projects, the ability to refinance into longer-term
insured financing after completion can make the business plan much more attractive. But borrowers need to be careful. The construction loan should not be based on the most aggressive possible takeout
assumption.There needs to be a margin of safety. If the program changes, if the market shifts, or if the final numbers are different than expected, the project still needs a viable exit strategy.That is how we think about construction lending at Foremost Financial.
We are not just looking at whether a project works in the best-case scenario. We are looking at whether it still makes sense if something goes wrong. Can the project be refinanced? Can it be rented? Can it be sold? is there a backup plan? The best projects are financeable through multiple scenarios.
Location Still Matters
Not every missing middle project works. The best opportunities are very location-specific. In Toronto, we are seeing strong interest in sites where builders can create multiple
units without taking on the complexity of a much larger project. Major streets, transit-oriented locations, and areas with strong rental demand are especially interesting.In some cases, severing a lot and building two multiplexes side by side can create
better economies of scale while still staying within a manageable project size. Parking is another major consideration. In the core, near transit, some projects can work with limited parking. In more suburban
locations, parking becomes much more important. If tenants need cars and the site
cannot accommodate them, that can affect both rentability and long-term value.
A cheap piece of land is not automatically a good development site.
Once you factor in achievable rents, development charges, servicing, parking, soft
costs, timelines, and financing, the real economics become much clearer.
Experience Is Expensive — But Inexperience Is More Expensive
There is a lot of excitement in the missing middle space right now.
That is positive. Ontario needs more housing, and smaller builders can play an
important role in delivering it.
But construction is not easy.
The people who succeed usually have experience, strong partners, realistic budgets,
and a willingness to listen to advisors who have seen projects go wrong before.
The people who struggle often underestimate costs, rely on optimistic pro formas, or
assume they can figure things out as they go.
In construction, small mistakes can become expensive very quickly.
Using the wrong trade, buying non-compliant materials, failing to budget for HST,
misunderstanding the draw process, or not having enough liquidity can create serious
problems.
For newer developers, one of the best investments they can make is partnering with
experienced builders, project managers, consultants, brokers, and lenders.
You can buy experience.
And in many cases, it is worth every dollar.
About Foremost Financial
Foremost Financial is an Ontario-based private mortgage lender specializing in
construction financing, land loans, bridge financing, and commercial mortgage lending.
Since 1987, Foremost has worked with builders, developers, business owners, brokers,
and real estate investors across Ontario.
Our focus is on practical, well-structured financing for real estate projects that make
sense.
Construction lending is not just about the value of the property today. It is about the
borrower, the builder, the budget, the timeline, the exit strategy, and the capital required
to complete the project.
At Foremost, we take a hands-on approach to understanding each project and
structuring financing that aligns with the realities of construction.
About Matt Gonsalves
Matt Gonsalves is Vice President & Broker – Mortgage Lending at Foremost Financial,
where he originates loans and works closely with builders, developers, mortgage
brokers, and real estate investors across Ontario.
Since joining Foremost in 2013, Matt has focused on construction financing, land loans,
bridge financing, and commercial mortgage lending. His work includes structuring loans
for custom homes, multiplexes, garden suites, infill developments, industrial properties,
and other small to mid-sized real estate projects.
Matt’s approach to lending is relationship-driven and practical. He works to understand
each project, the borrower’s experience, the construction budget, the exit strategy, and
the risks that need to be managed before and during construction.
Through his role at Foremost, Matt has developed a strong understanding of Ontario’s
construction lending market, including the challenges facing builders today: rising costs,
changing planning policies, liquidity constraints, CMHC takeout financing, and the
growing importance of missing middle housing.
Matt is especially focused on helping borrowers and broker partners structure financing
that supports successful project completion, not just loan approval.
About BLD Financial
BLD Financial is a mortgage brokerage that works with investors, builders, developers,
and business owners to help structure commercial and real estate financing solutions.What I appreciate about Ehren, Josh, and the BLD Financial team is that they take an
advisory approach.
That matters in today’s market.
Many borrowers need more than one piece of financing. They may need acquisition
financing, construction financing, CMHC takeout financing, and a long-term strategy for
holding or selling the completed asset.
Understanding how those pieces fit together can make a major difference in whether a
project succeeds.
Final Thoughts
Missing middle housing has the potential to play an important role in Ontario’s housing
future.
It can add density in established neighbourhoods. It can create more rental options. It
can provide a housing product that feels more livable than many traditional condo units.
But it has to be done properly.
A successful project requires the right land, the right team, the right financing, the right
liquidity, and the right exit strategy.
The opportunity is not simply in building more units.
The opportunity is in building projects that can actually be completed, refinanced, and
held or sold successfully.
That is where thoughtful financing matters.
And that is where experienced builders, brokers, advisors, and lenders can make all the
difference.