MLI Select Is an Energy Project With a Mortgage Attached

On an older rental building, the energy work shows up twice in the model: once in the capex, once in 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 coverage and amortization, and both come from points.

How it works on existing buildings: 50, 70 or 100 points qualify for 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. CMHC’s standard rental insurance already allows up to 40 years on an existing building, but at 1.30x coverage on a five-year term.

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. They look cheapest because there’s nothing to build, but the commitment caps NOI for the hold and the terminal value at sale, so over a full hold they’re rarely the cheap option. 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:

• Standard insurance, 40 years at 1.30x, supports ~$4.6MM
• Select at 50 points, 40 years at 1.10x, supports ~$5.5MM
• Select at 100 points, 50 years at 1.10x, supports ~$5.9MM

At 50 points, the lower coverage test adds ~$0.8MM of proceeds at the same 40 years, about 18% more loan. Same building, same NOI. The points are the difference.

That’s before CMHC’s insurance premium, which comes on top. It rises with leverage and amortization and comes down as you earn more points. It’s usually added to the loan, so it gets amortized along with everything else. I count it as part of the cost of the longer amortization, not a footnote.

Figures are illustrative and rounded, on a five-year term and before the CMHC premium; actual sizing depends on the lender, the rate and the building.

The loan is sized by whichever test binds first. In the example the 50‑point 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.

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. Both sides move the return, so I underwrite them together instead of treating the energy work as a cost to minimize.

Some of that cost lands before you own the building. Diligence now includes an energy model and a consultant to scope the work, paid up front whether or not the deal closes. I’ve worked with the same two groups for years, so the process is routine now, but the first couple of times there’s a real learning curve.

So I build the model in that order: energy scope and cost, then points, then amortization, then debt. If the deal pencils at Standard coverage, 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.