Two versions of the same Canadian multifamily deal — the one most operators run, and the one we actually run.
This is the underwriting we run on a real type of deal in southwestern Ontario: a tired 20-unit walk-up in London, family-owned, in-place rents 30–40% below market. Every operator looking at this building sees the same value-add. Most run a cosmetic reno and wait for tenants to turn (Part One). We layer that with unit creation, an affordability commitment, the City of London's forgivable loan, and CMHC MLI Select at 95% loan-to-cost (Part Two). Both plays own the same building at Year 5. By Year 10, one has returned 152% of LP capital without selling. The other has returned about 34%.
This isn't a marketing piece. It's the math, walked end-to-end, with the assumptions visible and the awkward parts (2BR tenant buyouts, DSCR floors, covenant risk at sale) shown rather than hidden. If you're underwriting a deal in this category, this is the framework we'd want you to compare yours against.
| Line item | Amount |
|---|---|
| Purchase price | $3,600,000 ($180,000/door) |
| In-place avg rent (blended) | $1,025/mo |
| In-place gross rent (20 × $1,025 × 12) | $246,000 |
| Less vacancy (5%) | ($12,300) |
| Effective gross income | $233,700 |
| Less OPEX (42% — vendor running it loose) | ($98,154) |
| In-place NOI | $135,546 |
| In-place cap rate | 3.77% |
3.77% in-place is tight. That's the going-in cap on SW Ontario well-located walk-ups right now — buyers are paying for the upside, not the cash flow. We're not buying for the in-place. We're buying because we can change the building. From here, there are two plays. Most operators run Play One. We run Play Two.
What most operators do with this building. Honest math, modest math.
| Scope | Per door | Count | Total |
|---|---|---|---|
| Bachelor turn (kitchen / bath / floor / paint) | $20,000 | 4 | $80,000 |
| 1-bedroom turn (same scope, larger unit) | $25,000 | 12 | $300,000 |
| 2-bedroom turn (largest, two baths often) | $30,000 | 4 | $120,000 |
| Common areas + exterior + mechanical + submetering | $100,000 | ||
| Soft costs (legal, closing, lender, holding) | $80,000 | ||
| Contingency (10%) | $68,000 | ||
| Total Part One budget | $748,000 |
All-in basis (Part One): $3,600,000 + $748,000 = $4,348,000.
Here's the part most underwriting decks skip: in Ontario, you can't force turnover. The RTA caps annual increases, and existing tenants on legacy rents don't leave. Realistic turnover in walk-ups of this vintage is 15–20% per year — 3 to 4 units a year. So full stabilization at post-reno market rents takes time:
You don't capture the spread on paper until the units actually turn.
| Unit type | Count | Post-reno market rent | Monthly | Annual |
|---|---|---|---|---|
| Bachelor | 4 | $1,375 | $5,500 | $66,000 |
| 1-bedroom | 12 | $1,725 | $20,700 | $248,400 |
| 2-bedroom | 4 | $2,200 | $8,800 | $105,600 |
| TOTAL (today's dollars) | 20 | $35,000 | $420,000 |
Stabilized NOI at full turnover (today's $): gross $420K − 3% vacancy − 40% OPEX = $244,440.
Stabilized cap (today's $): $244,440 / $4,348,000 = 5.62%.
| Year | % units turned | Blended NOI | vs in-place |
|---|---|---|---|
| Year 0 (acq) | 0% | $135,546 | baseline |
| Year 1 | ~25% | ~$167,000 | +23% |
| Year 2 | ~50% | ~$200,000 | +48% |
| Year 3 | ~75% | ~$228,000 | +68% |
| Year 4 | ~87.5% | ~$248,000 | +83% |
| Year 5 | ~100% | ~$276,000 | +104% |
Part One doesn't fit MLI Select cleanly — no unit creation, no affordability commitment. Realistic financing path: 75% LTV acquisition bridge held through Year 3 (~$189K/yr carry on $2.7M @ 7%), conventional refi at Year 4 when ~88% stabilized and the building supports a take-out at 65% LTV.
| Year | NOI | Debt service | Annual CF to equity | CoC on $2,215K in |
|---|---|---|---|---|
| Year 1 (~25% turned) | $167,000 | $189,000 (bridge) | ($22,000) — funded from equity | negative |
| Year 2 (~50% turned) | $200,000 | $189,000 (bridge) | $11,000 | 0.5% |
| Year 3 (~75% turned) | $228,000 | $189,000 (bridge) | $39,000 | 1.8% |
| Year 4 (refi event, ~88% turned) | $248,000 | $219,000 (conv refi) | $29,000 + $231K refi cash | 11.7% incl refi |
| Year 5 (~100% turned) | $276,000 | $219,000 (conv refi) | $57,000 | 2.6% |
Part One works — barely. The slow capture eats the cash flow. With 3-year bridge carry at 7%, you're bleeding $189K/yr while you wait for tenants to leave. By the time you refi at Year 4, the conventional 65% LTV loan only returns ~10% of your equity. By the end of Year 5, you've gotten ~18% of your capital back. The other 82% is still tied up in the building.
For an LP, that's a long wait. No path to capital recovery without selling.
Same building. Layered strategy. Why we underwrite to this version.
End state: 20 units → 25 units. 16 at market rent. 9 at affordable rent. Net unit creation: +5. The mix is what unlocks the financing.
| Scope | Per unit | Count | Total |
|---|---|---|---|
| Existing bachelor turn (cosmetic, to market rent) | $20,000 | 4 | $80,000 |
| Existing 1-bedroom turn (cosmetic, to market rent) | $25,000 | 12 | $300,000 |
| 2BR tenant buyouts (N11 + relocation premium to clear for splits) | $37,500 | 4 | $150,000 |
| New 1-bedroom build-out (from 2BR splits — per ADDITIONAL net unit) | $80,000 | 4 | $320,000 |
| New basement bachelor (ZBA, egress, drainage, electrical, finishes) | $80,000 | 1 | $80,000 |
| Common areas + exterior + mechanical + submetering | $100,000 | ||
| Soft costs (legal, planning, ZBA, lender, holding) | $150,000 | ||
| Contingency (10%) | $130,000 | ||
| Total Part Two budget | $1,310,000 |
All-in basis (Part Two): $3,600,000 + $1,310,000 = $4,910,000.
This is the part most operators get wrong, in both directions. The affordability commitment applies to the 9 NEW units only — the existing 16 go to MARKET rent as they organically turn. But the "affordable" rents have to actually qualify as CMHC affordable, which means at or below 80% of CMHC's published median market rent for the London CMA. That's $1,080 for the 1-bedrooms and $880 for the bachelor — meaningfully below what we charge on the market units, and meaningfully below what undisciplined operators try to call "affordable."
| Unit type | Count | Rent basis | Rent | Monthly | Annual |
|---|---|---|---|---|---|
| Existing bachelor (renovated) | 4 | Market | $1,375 | $5,500 | $66,000 |
| Existing 1-bedroom (renovated) | 12 | Market | $1,725 | $20,700 | $248,400 |
| New 1-bedroom (from 2BR splits) | 8 | CMHC affordable (80% median) | $1,080 | $8,640 | $103,680 |
| New basement bachelor | 1 | CMHC affordable (80% median) | $880 | $880 | $10,560 |
| TOTAL (today's dollars) | 25 | $35,720 | $428,640 |
Stabilized gross (today's $): $428,640. Less 3% vacancy ($12,859) = EGI $415,781. Less 35% OPEX (post-reno operations — see note below) = $270,258 NOI.
The ZBA process for splits + the basement bachelor runs in parallel with the existing-unit turnover work, and the City of London's affordable-housing application stream is faster than a market-rate ZBA. We model Year 2 stabilization.
The City forgivable loan ($405K) doesn't arrive in one cheque at Year 2 — the City disburses it in two tranches: 50% at building permit issuance (typically ~Year 1, once ZBA approval is in hand and the City confirms the project is going to deliver affordable units) and 50% at project completion (Year 2, when the new units are signed-off and leased to qualifying tenants). The operator applies each tranche against the bridge balance, reducing interest carry.
$360K of bridge carry is real — but it's reduced because the City's staged advances pay down the most expensive debt as they arrive. And it's still $189K/yr cheaper than Part One because Part Two reaches stabilization a year faster.
This is the section that earns the lead magnet. Part Two has THREE layers of capital working together at refi — and most operators only know about the first one. With efficient post-reno operations (35% OPEX, submetered, in-house managed) the deal supports the top MLI Select tier: 95% LTC with a 20-year deep-affordability commitment.
| Layer 1 — CMHC MLI Select primary mortgage at Year 2 | Amount |
|---|---|
| All-in basis | $4,910,000 |
| Loan-to-cost (95% — MLI Select Tier 3 top tier w/ 20-yr deep affordability) | 95% |
| Primary mortgage proceeds | $4,664,500 |
| 5-yr fixed CMHC-insured rate (illustrative) | 4.25% |
| Amortization | 40 years |
| Annual debt service | $242,715 |
| Year 2 stabilized NOI (today's $) | $270,258 |
| Year 2 DSCR (CMHC Tier 3 floor: 1.10x for deep affordability) | 1.11x ✓ |
1.11x DSCR clears CMHC's Tier 3 deep-affordability floor (1.10x). The 9-unit affordability commitment, 30%+ unit concentration, and 20-year term together qualify for the top LTC tier. The doc shows it honestly: this is the maximum-leverage version of the deal, which is achievable precisely because we made the deep social commitment.
| Layer 2 — City of London forgivable loan (staged disbursement) | Amount |
|---|---|
| $45,000 per affordable unit committed | 9 units |
| Forgivable loan principal | $405,000 |
| Tranche 1: at building permit issuance (~Year 1) | $202,500 |
| Tranche 2: at project completion (~Year 2) | $202,500 |
| Interest rate | 0% (subordinate to CMHC) |
| Forgiveness condition | 20 years of affordability compliance on the 9 units |
| Position in stack | Subordinate (registered second) |
The staged disbursement matters operationally. The building-permit advance lands ~12 months before the CMHC refi event — it confirms the City has approved the project, the ZBA is in hand, and the deal is on track. From an LP's perspective, it's the first hard de-risking event after closing.
| Layer 3 — Remaining equity in deal | Amount |
|---|---|
| Total cash equity in by Year 2 (net of bridge-carry savings from City advances) | $2,570,000 |
| Less CMHC primary cash to equity at Y2 refi (after $2,295K bridge payoff) | ($2,369,500) |
| Remaining equity in deal post-refi | $200,500 |
| Equity recycled by end of Year 2 | ~92% |
~92% capital recycled by the end of Year 2. The $200K still in the deal earns ongoing cash-on-cash from operations — see §12. The City forgivable layer is what lifts the recycle ratio from "good" to "structurally different": the staged advances pay down the high-cost bridge during construction, and at Year 2 the CMHC refi clears what's left of the bridge — leaving ~$2.37M of cash flowing back to equity at the refi event.
This is where the doc parts ways with most syndicator pitches: we do not model an exit. FC holds. The deal is judged on cash returned during the hold, not on the sale that's never planned.
Mixed indexation: market units inflate at ~2.5%/yr; affordable units indexed by the program at ~1.5%/yr. Blended NOI growth ~2%/yr.
| Year | NOI | Debt service | Cash flow to equity | CoC on $200K remaining |
|---|---|---|---|---|
| Years 0–1 (build) | stabilizing | bridge carry (City advances apply mid-Y1) | negative (from equity) | n/a |
| Year 2 (refi event) | $270,258 | $242,715 | $27,543 | 13.7% |
| Year 3 | $275,663 | $242,715 | $32,948 | 16.4% |
| Year 4 | $281,176 | $242,715 | $38,461 | 19.2% |
| Year 5 | $286,800 | $242,715 | $44,085 | 22.0% |
The headline number an LP feels is "how much of my cash have I gotten back, and when?" That's cumulative cash distributions over equity in, year by year — no sale assumed. Here's both plays side by side.
| Year | Part One cum cash returned | Part One DPI | Part Two cum cash returned | Part Two DPI |
|---|---|---|---|---|
| Year 1 (PT 2: City advance #1 applied to bridge) | ($22,000) negative | (1%) | $202,500 in (bridge paydown) | 7.9% |
| Year 2 (PT 2 refi event + City advance #2) | $11,000 | 0.5% | $2,397,000 | 93.3% |
| Year 3 | $50,000 | 2.3% | $2,430,000 | 94.6% |
| Year 4 (PT 1 refi event) | $310,000 | 14.0% | $2,469,000 | 96.1% |
| Year 5 (operator hold, no sale) | $367,000 | 16.6% | $2,513,000 | 97.8% |
Read this carefully — it's the most important table in the doc.
This is what "rinse and recycle the capital" means in numbers. Part Two recycles 92% of equity in a single refi event at Year 2, plus another 5% from ongoing CF over 3 years. Part One doesn't recycle materially until the conventional refi at Year 4 — and even then only 10% of equity comes out.
| Part One — Cosmetic Reno | Part Two — ZBA + Affordability | |
|---|---|---|
| Final unit count | 20 | 25 (16 market + 9 affordable) |
| All-in basis (no bridge carry) | $4,348,000 | $4,910,000 |
| Total cash equity in (incl. bridge carry, net of staged City advances on PT2) | ~$2,215,000 | ~$2,570,000 |
| Stabilized NOI (today's $, full) | $244,440 | $270,258 |
| Stabilized cap (today's $) | 5.62% | 5.50% |
| Stabilized OPEX assumption | 40% | 35% (efficient post-reno ops) |
| Stabilization timeline | Year 5 | Year 2 |
| First refi event | Year 4 conventional 65% LTV | Year 2 CMHC MLI Select Tier 3 95% LTC |
| City of London forgivable loan | $0 | $405,000 (forgiven Y20 w/ compliance) |
| Equity recycled by end of Year 2 (incl. City staged advances) | ~10% | ~92% |
| Remaining equity in deal post-refi | ~$1,984,000 | ~$200,000 |
| Year 5 ongoing CoC (on remaining equity) | ~3% | ~22% |
| DPI by end of Year 5 (no sale) | 17% | 98% |
| Second refi available (Year 7)? | No | Yes — additional ~$1.25M cash |
| DPI by end of Year 10 (hold + 2 refis, no sale) | ~34% | 152% |
| Year-20 silent return (forgivable loan discharge) | $0 | +$405K to equity |
| Most operators run this? | Yes | No |
This is where the gap opens up. Part Two doesn't out-return Part One on a sale-at-Year-5 basis — both plays put roughly the same building on the table. The gap is in capital efficiency over time: by Year 10 with no sale, Part Two has returned 152% of equity through two CMHC refi events plus 8 years of cash flow. Part One has returned ~34% with no path to recover the rest without selling.
The mechanics that make Part Two work are: (1) the 9 new units committed to CMHC-compliant affordability unlock the City of London forgivable loan AND the deepest MLI Select tier, (2) the 16 existing units marked to MARKET keep the blended NOI high enough to support 95% LTC at CMHC's DSCR floor with 35% OPEX, (3) the 2-year stabilization timeline saves a year of bridge carry, and (4) the recycled capital is then redeployed into the next deal — that's the engine that lets a small operator run 3–4 of these in parallel.
5 years is what most syndicators show because their fund has a 5-year horizon. FC's hold is permanent — or at least long enough to capture multiple refinancing cycles. The right question isn't "what's my Year-5 IRR?" — it's "what does another refinance at Year 7 do for me, and is selling at Year 10 better than continuing to hold?"
By Year 7, the building has 5 years of post-refi rent growth (2%/yr blended). NOI moves from $270K to $298K. We refi the CMHC primary mortgage on the renewal cycle. Assumptions: cap rates stable at 5.0%, new 5-yr fixed CMHC rate normalized to 4.0% (vs the 4.25% we locked at Y2), 95% LTV on the new appraised value (Tier 3 commitment maintained).
| Year 7 CMHC MLI Select refi | Amount |
|---|---|
| Year 7 NOI (today's $ × 1.02⁵) | $298,386 |
| Year 7 appraised value @ 5.0% cap | $5,967,723 |
| New 95% LTV loan (Tier 3 maintained) | $5,669,337 |
| New 5-yr fixed rate (illustrative) | 4.00% |
| New annual debt service | $284,332 |
| Year 7 DSCR (CMHC Tier 3 floor: 1.05x) | 1.05x ✓ |
| Less existing Y2 primary mortgage balance (5 yrs paid, 40-yr am @ 4.25%) | ($4,417,226) |
| Cash to equity at Year 7 refi | $1,252,110 |
The Year 7 refi pulls another ~$1.25M of capital out of the building tax-free. Combined with the Year 2 refi and Years 2–6 cash flow, cumulative distributions by Year 7 are $3,814,000 on $2,570,000 equity in = 148% DPI. You've gotten 1.47× your capital back and you still own the building.
Years 7–10 produce smaller cash flow because the new larger loan carries higher debt service. Operating CF Y7–Y10: ~$92K cumulative. Plus the $1.25M Y7 refi event. Cumulative by Year 10:
| Year 10 holding total (no sale) | Amount |
|---|---|
| Y2 refi cash to equity (CMHC primary net of bridge already paid down by City advances) | $2,369,500 |
| CF Years 2–6 (5 yrs) | $192,858 |
| Y7 refi (cash to equity) | $1,252,110 |
| CF Years 7–10 (after new larger DS) | $92,502 |
| Total cash distributed Y0–Y10 (no sale) | $3,906,971 |
| DPI by Year 10 (hold + 2nd refi) | 152% |
By Year 10 you've returned 152% of LP capital. You still own a 25-unit building producing ~$32K/yr in cash flow with 10 years until the City forgivable loan discharges (another $405K silent return). And you can refi a third time at Year 12.
What if we just sold at Year 10 instead of running the second refi? The City forgivable loan creates a structural problem at sale: either the buyer assumes the 20-year affordability covenant (and discounts the price for the restriction), or the seller pays the City loan off and discharges title at closing. Either way, the cost flows back to the seller.
| Sell at Year 10 (Part Two) — covenant cleared at closing | Amount |
|---|---|
| Year 10 NOI (today's $ × 1.02⁸) | $316,650 |
| Sale value @ 5.0% cap (unrestricted) | $6,332,995 |
| Less outstanding CMHC loan (Y7 refi, 3 yrs paid) | ($5,486,197) |
| Less City forgivable loan payoff (10 yrs of covenant left) | ($405,000) |
| Less disposal costs (5%) | ($316,650) |
| Net equity from sale | $125,149 |
Selling at Year 10 only adds $125K of one-time cash beyond what the hold path already produced. Total cumulative DPI with sale: 156% vs 152% holding. A ~4-point DPI gap that disappears entirely when you account for what gets given up by selling.
If the buyer assumes the covenant instead, they typically discount the asking price by the present value of the affordability restriction — and 10 years of restricted rents on 9 units is meaningful. That discount lands in roughly the same range as the City payoff figure above, so the seller's net is similar either way. The point isn't which mechanism the buyer prefers — it's that the covenant has a real cost at sale that doesn't exist if you just keep holding.
$125K extra today vs continuing to own the building forever. The NPV math (8% discount rate):
The deals we walk away from look like 2 or 3 of these going against simultaneously, OR one being unrecoverable (vendor lying about a $200K capital surprise, or ZBA denial on a building where the conversion math was load-bearing).
This isn't a special deal. It's the model. A smaller operator runs three or four of these every two-to-three years — not faster, because the ZBA timeline, the City of London application process, and tenant buyouts together set a ceiling on parallel execution.
Part One is what every operator looking at this building runs. Part Two is what we run because we've put in the work to layer three sources of capital — CMHC MLI Select at 95% LTC under a 20-year deep-affordability commitment, the City of London forgivable loan, and our own equity — against 9 units at CMHC-compliant affordable rents.
We don't sell. The deal isn't built on a sale. It's built on recycling 92% of equity at Year 2 and redeploying that capital into the next building, while this one continues holding affordable housing supply in SW Ontario for 20+ years.
Most readers of this document are operators or aspiring operators. Some are family offices, investment advisors, or accredited investors who have read this far and thought: I'd rather have exposure to this strategy than execute it myself.
That's what Foundation Capital Private Real Estate Trust (FCPRET) exists for. It's the income fund within Foundation Capital's $65M+ platform, deploying LP capital into exactly this category of operator-driven, affordability-layered SW Ontario multifamily. Historical net returns of 22% and 15% over the last three years. Quarterly redemption with 30 days notice.
Three ways to engage from here:
Happy to compare notes on a deal you're underwriting either way. Once it launches, the Operator Letter will go deeper on a specific market, program, or deal structure in each issue.