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Elsa Hannaford, VP, Real Estate Finance: Thanks for being here, everyone. We have a lot to talk about today, so let&#8217;s dive in. Scott. Six months into 2025, what have our clients been saying about the trade uncertainty with the US? Who&#8217;s navigating the tariffs and who&#8217;s struggling?
Scott Brown, SVP, Ontario &amp; Prairies: Great question, Elsa. And thank you. You know, I&#8217;d say despite the ongoing trade uncertainty, we&#8217;ve seen the overall Canadian business optimism recover in June. And this is the third consecutive month that we&#8217;ve seen optimism improve. So the overall sentiment appears to have moved away from the doomsday scenario of three plus months ago, and businesses are starting to cope.
Having said that, you are seeing industries that continue to be challenged, most notably in the headline, some sectors of Ontario and Quebec, within the steel and aluminium industry, within some of the integrated supply chain, within the automotive industry. Continue to experience challenges as well as some of the transportation sector that is tied to the consumer discretionary.
There are some highlights. You know, when we look across some industries that are performing quite well right now. Canadian tourism has certainly had some optimism. Canadians are choosing to stay at home. And in fact, evidence early shows that Americans continue to come to Canada. We&#8217;re seeing some of the consumer, CPG products within grocery perform quite well. The Buy Canadian sentiment continues to perform.
And, you know, overall, I would say Canadian businesses are starting to look at opportunities outside of the US where Canada&#8217;s not alone in this tariff uncertainty. Certainly, companies are starting to see opportunities outside within the European Union and within the Indo-Pacific.
Elsa Hannaford: That&#8217;s great to hear. And, Evan, how have your private equity clients and their portfolio companies responded to the uncertain environment?
Evan Bennitt, SVP, Corporate Finance: In a lot of our private equity clients invest in businesses that are resilient, tend to, you know, source product and provide products and services into industries that exhibit non-cyclical demand. You know, so for the large part, we&#8217;ve had limited direct exposure with many of the portfolio companies to tariffs.
You know, that said, where businesses rely on global supply chains, whether private equity owned or not, and particularly where sourcing from Asia, we&#8217;ve seen a couple of things. Initially, the product going into the US and we saw a push to get more inventory on the ground in the US just to provide more in the way of flexibility in dealing with, you know, what was potentially coming from a tariff perspective.
More recently, however, over the last couple of months, we&#8217;ve seen a real shift accelerating the diversification of manufacturing, where the product is destined for the US out of China. And we&#8217;ve seen product manufacturing moving to places like Thailand, Indonesia, India, Vietnam. And in many cases, these are trends that were already happening. And in some cases started, you know, with the last Trump administration. But we&#8217;ve seen a real acceleration.
I think another thing we&#8217;ve seen from private equity funds is, we&#8217;ve seen a number of our fund relationships establish teams that are across the fund, fund-wide, where those teams aren&#8217;t just looking to ensure that best practices are being employed across portfolio companies, but they&#8217;re actually formally coordinating tasks across these businesses. Think things like procurement, sourcing, you know, products and inputs from countries that are ultimately common to a variety of different companies, shipping and logistics.
And really, the goal is to leverage the scale not just of one business, but of their entire portfolio of businesses, to seek and drive cost savings and efficiencies.
Elsa Hannaford: And that makes total sense. And, Tim, the housing market is not impacted by tariffs in quite the same way as other businesses. But the housing crisis is still top of mind for all of us. CIBC Economics expects a few more rate cuts, potentially by year-end. How might that impact the sector?
Tim Samis, SVP, Real Estate Finance: Yeah, what we&#8217;ve seen so far in 2025, there&#8217;s not a lot of motivated buyers out there right now. And that&#8217;s true whether it&#8217;s high-rise, low-rise, resale, or even my own personal residence, which happens to be on the market right now. I wish that was a joke.
So why is there soft demand right now? Well, it&#8217;s a number of factors. Sure, a higher rate environment is a factor, but right now you can actually get a five-year fixed mortgage for under 4%. So it&#8217;s not bad. And relative to long-term averages, it&#8217;s pretty good. But nevertheless, a rate cut will help variable rate mortgages.
But importantly, remember that will not really have much of an impact on fixed-rate mortgages, which are in fact driven by the five-year bond yields. And while our economist team is predicting a two-cut decrease on the Bank of Canada rate, we&#8217;re only expecting about a 15 basis point decrease on the five-year bond yield.
Issue number two is confidence. Consumer confidence is at an all-time low right now or at least a 70-year low. And whether it&#8217;s trade and tariff, potential recession and job loss, or escalating global conflict, consumers aren&#8217;t really in the mood to buy a house, which is often their largest purchase.
And for the first time in a long time, there&#8217;s not confidence that real estate will be an appreciating asset class in Canada. And so taking on a $1 million mortgage, when you think you&#8217;re going to have capital appreciation, which will ultimately help service the debt and repay the debt, that&#8217;s one thing. If you actually have to pay back that million-dollar mortgage, it becomes a little more daunting.
Where we are still seeing pockets of demand is for a very well-priced product, in Richmond Hill. So think townhouses, $700,000 to $800,000 in Richmond Hill. That product will move right now.
So then you ask yourself the question, will rate cuts help reduce the construction cost of new product? And they will. But if I look at most construction budgets, development charges from municipalities are double what financing costs are. So a rate cut in isolation won&#8217;t have a material impact on affordability.
So put another way, rate cuts—they&#8217;re not going to hurt. But they&#8217;re far from a silver bullet. And I think what will have a material impact or more material impact is Canada and the US getting resolution on a trade agreement, and putting the tariffs and economic uncertainty in the rear-view mirror as much as we can. And that&#8217;s going to really help drive consumer confidence.
Elsa Hannaford: For sure. A lot of levers that would need to be pulled. And Scott, moving back to you, looking forward, what advice would you have for our clients who are potentially looking to make large investments or even sell their business in the coming year, especially because we expect uncertainty to last for a while?
Scott Brown: Yeah, we all know that times of uncertainty create disruption and lead to opportunities. I think, you know, for us, this is really about a change in mindset, a change in mindset in viewing uncertainty as a temporary storm that may pass. And decision-making waits until the storm passes.
I think this is the new climate that we&#8217;re going to experience. And, you know, for those waiting for the storm to pass is almost like waiting for a train on the platform that may not arrive. We&#8217;re asking entrepreneurs, you know, we&#8217;re not going to have 100% foresight, clarity. But what we need to have is clarity around where we want to take the business, clarity around the values that we represent.
You know, clarity around risk-taking that we&#8217;re prepared to take on, and leaning in with partners, both inside and outside the organisation, to support in that decision-making process and to certainly look for a path that you can be comfortable with, aligns with the values and is where you&#8217;d like to take the business.
Elsa Hannaford: And Evan, you had previously talked about the M&amp;A space having potential for growth in 2025. Six months in, what are you seeing?
Evan Bennitt: Look, there&#8217;s no question that the uncertainty of the last six months has made it very difficult to have confidence in deploying capital, ultimately impacting M&amp;A markets and M&amp;A volumes initially in Canada. But post-Liberation Day, you know, we saw US activity slow a fair bit as well.
That doesn&#8217;t mean deals aren&#8217;t happening. Deals are still happening. You know, where we tend to be busiest is with our sector-focused clients, where their subject matter expertise and knowledge of a particular space just allows them to operate with a higher degree of confidence and conviction around pursuing targets.
We are definitely seeing fewer broad processes. There&#8217;s fewer Sims coming across the desk. Processes are more narrow. You know, we&#8217;re seeing a number of proprietary transactions again, particularly with those sector focused clients.
Punch line here, I think, is in the medium term, the outlook for M&amp;A should remain quite strong. We&#8217;ve got an abundance of capital on the sidelines looking to deploy. We&#8217;ve got a number of long-held businesses that, you know, there&#8217;s pressure to sell those businesses and return capital to investors.
We&#8217;ve got an environment from an interest rate perspective that&#8217;s pretty benign, you know, kind of flat to declining. These are all things that should be supportive of increased M&amp;A activity and investment.
But, and there is a but, you know, we really do need to get to a point where there&#8217;s more certainty, less uncertainty and have some visibility into, ultimately, what the trade situation looks like and the tariff situation looks like. I think once we get to that point, we will see a fairly strong increase in activity.
Elsa Hannaford: Yeah, it seems like that&#8217;s the common theme across all industries that we&#8217;re seeing. And Tim, we have a relatively new federal government that has pledged to get more housing built. What would you like to see from policymakers to get construction moving?
Tim Samis: Great question. So I think we&#8217;ve all heard that the federal government has announced a goal to build 500,000 homes. And it&#8217;s great that this is top of mind, and it&#8217;s great that there&#8217;s a lot of thought being put into this. I would say there is scepticism in the industry, based on a lot of clients that I speak with, scepticism because this is literally double what the current private sector is building.
Well beyond what the peak has always been. I think there&#8217;s some scepticism because this plan would ultimately compete with the private sector for resources, whether it&#8217;s capital and jobs. And the question is where would these homes go? We don&#8217;t have an abundance of vacant land of serviced land in places that people want to live.
So what else could government do to really help drive building, not just building, but affordable building? And I think there are a number of levers.
First, it&#8217;s recognising that governments have had a major role in driving affordability issues in the country. But the good news is they are also in a position to help. So take Ontario. In Ontario, the cost of a new home, about a third of that goes to tax, whether it&#8217;s development charges, assignment, land transfer or sales tax.
And so effectively governments will generate three times what a builder would generate on margin for the sale of that unit. So let&#8217;s break it down into development charges. So development charges are what municipalities use to fund infrastructure which is driven by growth. So think roads, transit, water mains, sewers, parks, police stations, all of the municipal infrastructure.
And so that is funded through charges onto developers for new construction which is ultimately passed along to the new home buyer. So effectively the new home buyer has to fund all of the infrastructure needs of growth.
And so in the US, there&#8217;s different models to do this. One really attractive model is municipal bonds. And so rather than funding all of the infrastructure needs upfront on day one, cities will amortise the funding requirements over a 30-year bond, which could reduce the cost of infrastructure of new homes by about 20%.
And the federal government could also make that a tax-free investment tool, which would attract a lot of retail and institutional investor appetite to that product.
Government&#8217;s also announced a cut to GST for first-time homebuyers up to $1 million. That&#8217;s great. Don&#8217;t think it goes far enough. That should really be applied to all home buyers as well.
Secondly is speed. In the US, in most markets, a multi-family building could be built in 24 months. Here, double that or potentially more. And there&#8217;s a lot of involvement from various forms of government along the whole building continuum, whether it&#8217;s zoning approvals, building inspection, occupancy certificates. And so the governments really need to work with decision-makers to accelerate that whole process.
Third is we talked about a housing shortage and notwithstanding the market, we’re in right now we still have a housing shortage to the tune of 3 to 3.5 million, according to CMHC. That&#8217;s what we need to build to start addressing affordability. What&#8217;s not talked about is the capital need to build those units, which could be $2 trillion.
And that&#8217;s a lot of money, right? If you think about it, the eight pension funds, the eight Maple Eight pension funds in Canada manage about $2 trillion. Only 25% of that is invested in Canada. So where&#8217;s the balance going to come from? It can&#8217;t be all the banks&#8217; balance sheets. So the federal government needs to create an environment where foreign capital is attracted to Canada through various tax incentives.
Another lever to pull is on immigration. We really need to drive immigration policy that attracts skilled tradespeople to Canada. Notwithstanding the market we&#8217;re in right now, there has been scarcity and there will continue to be scarcity on trades. And the expectation is about 500,000 to 700,000 tradespeople will ultimately retire in the short term.
So there are a number of levers to pull for the government. I think the levers that work best are when government partners with the private sector and doesn&#8217;t compete with the private sector. We&#8217;ve got a world-class building industry here, and the right policies and right programs will unleash that and help drive affordable growth.
Elsa Hannaford: Great. A lot to think about. Thank you so much, everyone. That was a really insightful talk.

Mid-year market watch: what’s shaping Commercial Markets right now?

Elsa Hannaford

Vice President, Real Estate Finance

CIBC Commercial Banking

Scott Brown

Senior Vice-President, Ontario & Prairies

CIBC Commercial Banking

Evan Bennitt

Senior Vice-President, Corporate Finance

CIBC Commercial Banking

Tim Samis

Senior Vice-President, Real Estate Finance

CIBC Commercial Banking