Commercial Loan-to-Value

LTV = mortgage principal ÷ lender-accepted value × 100. A $3.5 million mortgage against a $5 million accepted value is 70% LTV.

The critical phrase is lender-accepted value. A purchase price, tax assessment, broker opinion, owner estimate and commercial appraisal can all show different numbers. The amount used for lending is determined by the applicable transaction and lender policy.

Equity provides a collateral cushion if the lender eventually has to recover its loan through the property. It does not create monthly cash flow. A property can have 50% LTV and still be difficult to finance if tenants are leaving, NOI is weak or an owner-occupied business cannot support the debt.

The reverse can also occur: strong DSCR can exist at a requested principal that exceeds the lender’s LTV ceiling. The lower supported amount controls.

As-is value reflects the property in its current condition. As-complete value can assume specified improvements are finished. Stabilized value can reflect supportable stabilized occupancy and income. Transitional financing often needs more than one value because the property changes during the loan term.

Future value should not be treated as cash already available today. Advances can be limited by current value, work completed, cost-to-complete, leasing milestones or other conditions even when the stabilized appraisal is higher.

A 70% LTV purchase does not necessarily mean the borrower only needs 30% cash. Legal fees, land transfer tax, appraisal and environmental costs, lender/broker fees where applicable, immediate repairs, tenant improvements, reserves and working capital can all require additional liquidity.

A borrower who uses every liquid dollar to satisfy the equity portion can still be financially fragile after closing.

A simple collateral calculation is gross LTV capacity = accepted value × maximum permitted LTV − existing secured payouts. But that does not equal approved cash-out. DSCR, debt yield, business cash flow, liquidity and lender purpose limits can reduce the amount.

Transaction costs and required debt payouts also reduce net usable proceeds.

Where a second mortgage, vendor take-back or other secured claim remains behind or beside the first mortgage, the lender can consider combined LTV (CLTV) and priority. A modest first mortgage does not make a property lightly leveraged if substantial subordinate debt is also registered.

Future advances under collateral charges, blanket security and intercreditor arrangements can also affect how much effective collateral cushion remains.

A blanket mortgage over several properties can improve lender security by pooling collateral. For the borrower, however, selling or refinancing one asset may require a release price, partial paydown or lender consent.

Portfolio owners should therefore distinguish economic equity from releasable equity. The property may be worth substantially more than its allocated debt while still being tied to obligations elsewhere in the security package.

A $4 million mortgage at a $5 million accepted value is 80% LTV. If accepted value falls 10% to $4.5 million while principal remains $4 million, LTV rises to about 88.9%.

That sensitivity matters near policy boundaries and during bridge or refinance exits, especially where the original value depended on aggressive rent or cap-rate assumptions.

CMHC Standard Rental Housing currently publishes maximum LTV up to 85% under its program conditions. MLI Select can provide higher leverage for qualifying multi-unit projects that earn sufficient points and satisfy its continuing commitments.

Those figures belong to specific insured housing programs. They should not be presented as the maximum or normal LTV for every commercial property, bank, credit union, alternative lender or private lender.

OSFI’s capital framework assigns different prudential treatment to certain commercial real-estate exposures at different LTV bands. Those bands govern regulated-institution capital treatment; they are not a rule saying every Canadian commercial borrower can or cannot obtain a specified LTV.

Actual leverage depends on the lender, property, cash flow, program, security position and transaction.

Before treating equity as the answer, ask whether the debt is repayable, whether the value is durable, whether all secured claims are included, and whether enough liquidity remains after closing.