Step-by-Step Guide to Buying Commercial Real Estate in Canada

Step 1: Define your investment criteria in writing

Before looking at deals, write down: asset class (office, retail, industrial, multi-family, mixed-use), target market (city, submarket, neighbourhood), price range, target cap rate, leverage tolerance, hold period (5 years, 7 years, indefinite), management plan (active vs. third-party), and exit strategy (sell, refinance and hold, recapitalise). Without criteria you’ll chase mismatched deals and spend due-diligence dollars on properties you shouldn’t buy.

The criteria document is also what your broker, lender, and accountant work from. A clear one-page IC memo (“$3–5M industrial in Mississauga / Brampton, target 6.5%+ unlevered cap, 25–35% down, 7-year hold, third-party management”) tells everyone in your team what fits and what doesn’t.

Step 2: Build your team before you look at deals

• Commercial broker: different licensing and experience from residential agents. Specialise by asset class — industrial brokers know industrial; office brokers know office.
• Commercial real estate lawyer: resi lawyers don’t handle commercial deals well. Look for a firm with a dedicated commercial real estate practice and active deal flow.
• Accountant familiar with real estate: for HST treatment, capital cost allowance (CCA), and ownership structuring (personal, corporation, holdco, partnership).
• Commercial lender or mortgage broker: commercial lending is bespoke; a generalist mortgage broker may not have the lender relationships you need above $5M.
• Environmental consultant: Phase I ESA standard on most deals; Phase II if Phase I flags concerns.
• Property management firm if you don’t plan to self-manage; engage before close to ensure smooth handover.

Step 3–4: Source deals and underwrite to a target return

Commercial deals are sourced through brokers, off-market relationships, listing services (CREA Commercial, ICX, brokerage proprietary networks), industry associations, and direct outreach. Off-market deals are increasingly important above $10M where institutional listing exposure can hurt seller negotiating position. Build relationships with 2–3 specialist brokers in your target submarket and check in monthly.

Underwriting is a financial exercise: rent roll review (lease-by-lease, including expiries and renewal options), expense audit (verified against actuals, not seller-provided pro forma), NOI calculation (always with management fee even if owner-managed), cap rate vs. market, debt service coverage at expected rate, and exit assumptions. Pro forma what could go right and what could go wrong — sensitivity tables on rent growth, vacancy, cap-rate compression/expansion, and interest-rate scenarios.

Step 5: Financing structure and lender selection

Commercial mortgages are sized on debt service coverage ratio (DSCR), not just LTV. Expect 65–75% LTV on income-producing commercial real estate; insured CMHC programs (MLI Select, standard MLI) go higher for multi-family at lower rates. Personal guarantees are usually required for smaller deals (under $5M); recourse may be limited or carve-out only on larger institutional deals.

Rates are higher than residential because the lender takes more risk: typically prime + 1.0–2.5% or fixed-rate equivalent depending on asset class, term, and borrower profile. Term lengths are commonly 5 years with amortisation 25 years. Shop at least 3 lenders — a Schedule I bank, a Schedule II or credit union, and a monoline or specialty lender — because commercial pricing is more borrower- and deal-specific than residential and the spread between best and worst lender quotes can exceed 50 bps.

Step 6: Due diligence in detail

• Phase I Environmental Site Assessment — always. Phase II if Phase I flags concerns (gas station history, dry cleaner, manufacturing).
• Building condition report (BCR) — standard. Identifies capital expenditure required over 5–10 years.
• Lease estoppels and SNDA agreements from each tenant — confirms lease terms as represented and protects lender financing.
• Service contracts review (cleaning, security, snow, HVAC maintenance, elevator) — transferable, terminable, and at market rates?
• Zoning compliance and permitted uses — confirm current use is conforming or legal-non-conforming, and what changes are permitted.
• Property tax history and likely reassessment — sale triggers MPAC reassessment in Ontario, sometimes substantial.
• Survey, title search, parcel register — standard but more complex than residential (multiple PINs, easements, restrictive covenants).
• Insurance review — confirm replacement cost and any required coverage (environmental, business interruption).

Step 7: Closing and the critical first 90 days post-close

Closing involves the same statement-of-adjustments and trust transfers as residential, plus tenant notification (each tenant receives notice of new landlord and updated payment instructions), service contract assumption or termination, utility account transfers, insurance binding effective on closing, and — critically — setting up day-one property management. The first 90 days post-close are when the operational thesis of the deal is won or lost: tenant relationships, rent collection, vacancy turnover, and capex execution all need to start cleanly.

Plan for a 90-day operational dashboard: rent collection rate, tenant retention conversations on near-expiry leases, capex tracking against budget, and weekly review of leasing activity if vacancy exists. Commercial real estate is operations-intensive; the deal is the start, not the finish.

Frequently Asked Questions

Is HST charged on commercial real estate transactions?

Yes — GST/HST applies to most commercial real estate transactions. GST/HST-registered buyers can typically self-assess and recover input tax credits, which means the HST is a cash-flow timing issue rather than a true cost. Get accountant advice on your specific structure before signing.

Do I need a separate commercial broker, or can my residential agent help?

Strongly recommended to use a specialist commercial broker. Commercial brokers know cap rates, lease structures, market rents in their submarket, and the institutional buyer/seller landscape; residential generalists rarely do, and the cost of poor underwriting on a $5M deal vastly exceeds the broker fee.

What’s a typical down payment on commercial real estate?

25–35% on income-producing commercial. Multi-family with CMHC programs (MLI Select, standard MLI) can go to 15% on insured deals, with much better rates and longer amortisation than conventional commercial financing.

How long does a commercial closing actually take?

60–120 days is common from accepted offer to close. Environmental Phase I and financing conditions are typically the long pole; Phase II environmental, if required, can add 30–90 days. Build the timeline into your offer.