What the 1990s Downturn Teaches Today’s Capital Providers in Toronto Real Estate
Every real estate cycle leaves behind a playbook, and the sharpest investors are the ones who actually read it. Toronto’s current housing downturn, driven by elevated borrowing costs and a glut of unsold high-rise inventory, has sent lenders back to notes they took during the early 1990s. That history lesson is coming from two of the city’s most established private capital names, and it tells us a lot about where returns and risk are migrating right now.
Rob Goodall, founder and CEO of Canadian Mortgage Capital Corporation and Atrium Mortgage Investment Corporation, has called this the second worst downturn of his four decade career, with the high-rise residential segment taking a hit comparable to, and arguably sharper than, the early ’90s collapse. The difference this time is where the capital sits. Pension funds now carry a meaningful real estate allocation, REIT leverage has stayed disciplined at or below fifty percent, and developer balance sheets are generally stronger than they were three decades ago. For investors, that distinction matters. Structural resilience, not just sentiment, is what separates a correction from a crisis.
Where the opportunity is showing up is in the financing structure itself. With condo pre-sales largely gone, developers that once built towers on ten to fifteen percent equity are now staring down equity requirements that can run fifty to one hundred million dollars on a single project. That gap has created real demand for mezzanine lending, the secondary debt layer that sits behind a conventional construction loan. CMCC’s own example, a fifteen million dollar mezzanine position behind one hundred ninety five million dollars of senior bank debt on a fifty-storey midtown rental tower, shows exactly how that capital stack is being engineered to reduce the sponsor’s equity burden while still protecting the lender through CMHC-insured takeout financing.
A seasoned developer, a seasoned real estate investor, is very good at getting themselves out of a difficult situation.
That quote from Goodall is really an investment thesis disguised as advice. In a down cycle, underwriting the sponsor matters as much as underwriting the asset. Atrium’s own listing on the TSX in 2012, taken specifically to remove redemption pressure after a rough stretch during the 2008-2009 crisis, is itself a case study in matching capital structure to market cycle. Permanent capital let the firm keep lending through volatility instead of defending against withdrawals, and today it reports a pipeline north of one hundred million dollars in approved loans.
For readers positioning around this cycle, the signal is clear. Residential development financing is being rerouted toward inventory loans, bridge lending on industrial and rental assets, and insured CMHC structures that shave seventy five to one hundred basis points off borrowing costs. Toronto’s condo completions are projected to fall from roughly 20,868 in 2026 to 12,065 by 2028, a supply contraction that, paired with eventual rate relief and renewed resale activity, is the setup disciplined capital is quietly positioning for now, well before the recovery is obvious to everyone else.
Source: UrbanToronto, “CMCC and Atrium Draw Lessons from the 1990s for Toronto’s Housing Downturn”
