Q&A: Cushman & Wakefield's Brad Newman-Bennett On The State Of Real Estate Insolvencies

Key Takeaways

• Senior banks now feeling insolvency pressure
• Land values down ~50% from purchase price
• High‑rise projects see virtually no buyer interest
• Lenders favor income‑producing assets over new development
• Developers will need significantly higher equity ratios

Pulse Analysis

The Canadian real‑estate market is confronting a wave of insolvencies that differ from past cycles. Unlike the 2008 crisis or the COVID‑19 pause, today’s distress originates from senior lenders absorbing losses once reserved for opportunistic secondary financiers. As developers default, the first‑mortgage holders—Canada’s big five banks—are beginning to feel the strain, prompting a reassessment of risk models across the sector. This shift underscores a broader credit tightening that could reverberate through other asset classes, especially as banks grapple with loan‑to‑value mismatches on high‑rise projects.

Land valuation has become a pivotal bottleneck. Properties acquired five to seven years ago now sit at half or less of their original price, eroding collateral and discouraging both developers and investors. The absence of pre‑sales, soaring construction costs, and uncertain financing avenues have rendered large concrete towers virtually unsellable, even if the land were offered free. In contrast, smaller wood‑frame and townhouse developments retain modest appeal, reflecting a market pivot toward lower‑risk, income‑producing assets such as multifamily rentals and shopping centres.

For developers, the emerging reality is a demand for deeper equity cushions and a departure from aggressive leverage that characterized the pre‑pandemic boom. Lenders, wary of further write‑downs, are prioritizing credit bids on existing income‑generating properties while shying away from new construction financing. This cautious stance may suppress new housing supply, intensifying affordability pressures. Meanwhile, banks must balance potential losses against the need to maintain liquidity, making the next few quarters critical for both the real‑estate sector and the broader Canadian financial system.