Bridging the Gap for CMHC-Insured Mortgages – Initiating Coverage

• In H1-2025, the yield was 9.1% vs 10.1% in 2024 (full year), driven by lower interest rates. Note that 95% of mortgages are floating rate.
• Multi-family rents in major Canadian cities have declined over the past year, as vacancies rose due to higher supply, weaker employment, and fewer international students. We remain positive on the Canadian multi-family rental market, supported by steady long-term demand, high property prices, and affordability challenges from elevated mortgage rates.
• Since late 2024, the Bank of Canada has cut rates twice (50 bps total). We see room for one or two more cuts in the next six months, amid slowing GDP growth, elevated trade tensions, high unemployment, and cooling inflation. While mortgage delinquencies remain a concern, lower rates should ease pressure by reducing financing costs, compressing cap rates, and supporting property valuations, benefiting Peakhill’s borrowers.
• We find high-yielding funds, like Peakhill, increasingly attractive in the current declining rate environment. This is because MIE lending rates are less elastic, meaning their yields tend to decline less in a falling rate environment, and rise more slowly in a rising rate environment. We are forecasting a yield of 8.9% in 2025 vs 10.1% in 2024. 

 

Risks

• Highly competitive sector
• A downturn in the real estate sector may impact the company’s deal flow
• No guaranteed distributions
• Default rates can rise during recession 
• Timely deployment of capital is critical

* Peakhill has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions. All figures in C$ unless otherwise specified.

An Overview of Mortgage Investment Entities (MIEs)

MIEs provide short-term loans, typically one to two years, secured by Canadian real estate. With more flexible lending guidelines than traditional lenders, MIEs can offer tailor-made solutions to meet specific borrower needs. Unlike banks, which have lengthy due diligence processes, MIEs can respond quickly to urgent capital requirements. As a result, they are able to charge higher interest rates than banks and other conventional lenders.

Short-term loans secured by real estate

Key features:

• External Management Structure: Most MIEs are externally managed by their founders through a separate management company, which earns management and/or performance fees, as well as a share of the origination fees paid by borrowers.
• Revenue Generation: MIEs generate revenue primarily through interest income earned on loans extended to borrowers.
• Capital Structure: Mortgages are financed through a combination of debt (typically from banks or traditional lenders) and equity (raised from investors).
• Tax Efficiency: To maintain tax efficiency and avoid entity-level taxation, MIEs generally distribute 100% of their taxable income to investors.

In a recent market study conducted for the Canada Mortgage and Housing Corporation (“CMHC”), we estimated that there are approximately 200 MIEs in the country managing approximately $20B, accounting for 0.9% of the total residential mortgage credit in Canada ($2.3T).

Company Overview and Manager Background 

Founded in 2020, the fund is managed by Peakhill Capital Inc. (founded in 2019), owned by Harley Gold and employees. Brief biographies of the management team follow. 

The manager and management team have invested $22M in the fund, and own 6% of the fund’s units

The manger guarantees the first $15M of investor losses

Source: Peakhill Capital 

Since inception, the manager has funded $14.8B across 1,900+ loans, including $9B in CMHC-insured loans

With over $12B in assets under administration, Peakhill Capital is a commercial (multi-family) real estate lender providing financing to developers and investors, having serviced over 500 clients since its inception. The manager originated $5.5B in loans in 2024 vs $3.5B in 2023. 

Peakhill provides term, bridge, construction, and equity financing, mainly for multi-family projects, as well as for industrial, office, retail, and hospitality assets across Canada and the U.S. Additionally, the firm offers CMHC-insured and bridge loans in Canada, and is one of the largest CMHC-insured private lenders in the apartment sector.

Key Business Initiatives

Source: Peakhill Capital

Offers term, bridge, construction, and equity financing to real estate developers in Canada and the U.S.

The manager employs 130+ people, and has six offices across North America, with the head office in Toronto

Management fees range from 0.60% to 1.50% p.a. of mortgages outstanding, depending on the investment amount. The manager does not charge a performance fee, and has historically shared 50% of commitment fees. We estimate total annual management fees and operating expenses, net of shared commitment fees, at under 1.5% of mortgage receivables, broadly in line with comparable funds.

Investment Strategy

Focused on short-term loans to developers 

• Primarily focused on first mortgages on commercial properties in Canada
• Loan sizes typically range from $1 to $10M; the LP’s participation share generally ranges from 20% to 100% of each loan
• Mortgage terms are typically six to 24 months, with an average duration of eight months as of June 30, 2025
• The portfolio’s weighted average loan-to-value (LTV) will not exceed 75%
• Income-producing assets typically make up at least 85% of the portfolio, which we believe keeps the fund relatively lower risk compared to funds focused on development and construction projects
• Loans are floating rate, allowing the fund to quickly adjust to market rates
• All of the fund’s loans are demand loans, allowing the manager to call loans or require paydowns if property value or borrower performance deteriorates, ensuring borrowers remain accountable

Sample Deals

Source: Peakhill Capital 

The LP primarily provides bridge loans to income-producing multi-family properties seeking CMHC insurance. Once coverage is secured, Peakhill facilitates a takeout loan with one of its institutional partners, allowing the property to transition to long-term financing at more favorable rates. We believe this well-defined exit strategy makes the loans particularly appealing to Peakhill, as it ensures a clear repayment path and reduces default risk. 

Source: FRC

The following table shows how Peakhill LP’s portfolio compares to that of other similar MIEs (with AUM of $100M+).

The manager is among more than 100 CMHC-approved lenders in Canada

The fund has had no defaults on any of its bridge loans for CMHC-insured mortgages 

Source: FRC / Various

Peakhill’s portfolio features lower first mortgages, and a higher LTV, but a smaller average mortgage size, lower stage three mortgages, and loan loss allowances, and nil use of leverage

We note that Peakhill can extend higher LTV loans without materially increasing risk, given its well-defined exit strategy and low default risk

Portfolio Details (YE: December 31st) 

Source: FRC / Data from Peakhill Capital

Net mortgage receivables increased from $25M at the end of 2020, to $329M by the end of Q2-2025

The LP had $70M in unused credit as of Q2-2025

At the end of Q2-2025, the fund had $340M in equity, with $323M from investors (Class A), and $17M from the manager (Class B). The fund distributes 8% p.a. to Class A monthly, followed by 8% to Class B, with all excess profits distributed pro rata at year-end. Class A Units have priority on distributions, redemption rights, and return of capital in the event of liquidation, with Class B Units absorbing the first $15M of losses (in the event of liquidation), after which, both units participate equally and pro rata. 

In H1-2025, originations were up 34%; repayments were up 46%

First mortgages accounted for 82% of outstanding mortgages

In addition, all second mortgages are subordinate to CMHC-insured first mortgages

At the end of Q2-2025, the average mortgage size was $2.27M, down 5% YTD

Source: FRC / Data from Peakhill Capital

The average term to maturity was eight months 

CMHC bridge loans accounted for 72% of the portfolio

Income-producing assets comprised 90% of the portfolio

Geographical Diversification

ON accounted for 53% of mortgages, followed by AB (21%), and QC (18%)

The weighted average LTV has ranged between 69% and 76%

Lending rates have adjusted with market rates

95% of the portfolio consists of floating-rate mortgages

Source: FRC / Data from Peakhill Capital

At the end of Q2, the portfolio had $11M in impaired (stage 3) mortgages, or 3.4% of the portfolio vs the sector average of 5.6%

Financials

H1-2025 revenue was up 43% YoY, driven by higher mortgage receivables

Distributions were up 54% YoY

Note that the above figures may be slightly different from the figures reported by the MIE due to differences in the method of calculation. We used the average of the opening and year-end balances of mortgages outstanding and invested capital.

Source: FRC / Data from Peakhill Capital

The H1-2025 yield was 9.1% vs 10.1% in 2024 (full year), driven by lower interest rates, with an annualized yield of 9.83% since-inception

Source: Peakhill Capital 

FRC Projections and Rating

Management is targeting a yield of prime 8%+ p.a.

With rates trending downward, we foresee yields declining in 2025 and 2026

 

We are projecting yields of 8.9% in 2025, and 8.3% in 2026

Source: FRC

Our estimate for the 2025 yield varies between 8.1% and 9.9%, as loan loss provisions and lending rates vary

We are initiating coverage with an overall rating of 2-, and risk rating of 2. We find high-yielding funds, like Peakhill, increasingly attractive in the current declining rate environment. This is because MIE lending rates are less elastic, meaning their yields tend to decline less in a falling rate environment, and rise more slowly in a rising rate environment. Given the BoC’s recent and anticipated rate cuts, yields are set to decline. However, we believe the risk of higher default rates is easing, and the mortgage origination market is likely to gain momentum in 2026. 

Risks 

We believe the fund is exposed to the following key risks (not exhaustive):

 

• Highly competitive sector
• A downturn in the real estate sector may impact the company’s deal flow
• No guaranteed distributions
• Default rates can rise during recession 
• Timely deployment of capital is critical

APPENDIX