Life Insurers See an Opening in Commercial Mortgages.   Leave a comment

An interesting trend developed in the last six months of this year as life insurance companies have come to play a bigger role in the commercial mortgage market.


I’m sure some of you have noticed that it has not been so easy these days to secure a commercial loan. It’s not surprising considering the lack of investor interest out there, skeptical lenders and stern messaging by ratings agencies regarding high risk opportunities or lack thereof. As a result of this insecurity, life insurance companies have stepped in and are building a large presence as major lenders in the CRE marketplace.

The NYT reported that “the life insurance industry underwrote $15.7 billion in new commercial mortgages — the largest volume on record since the American Council of Life Insurers began tracking the number in 1965.” That’s a pretty hefty number considering the unorthodox source.

Wall Street has been a bit occupied lately (yes, that’s a joke) and investment banks have been dormant paving the way for life insurers to step in and provide what the usual major lenders have not been able to do. Little competition in the marketplace allows for life insurance companies, who are primarily conservative with their offerings, to focus on issuing loans that meet their requirements with high quality borrowers and solid properties. Metlife is one of the major players right now. In the first three quarters of this year they have already matched the $8 billion they lent in 2010.

Applying for a commercial mortgage through a life insurance company can also offer advantages for borrowers. Most life insurers do not pool their loans into bonds, like many investment banks do, so they don’t have to satisfy weary bond purchasers offering high rates. As a result, life insurance companies can offer lower rates. In addition, life insurer’s mortgages perform pretty well overall. Simply based on their strict guidelines and active approach to managing the loans, it’s no surprise that almost 100% of their loans are in good standing.

It wouldn’t be surprising if life insurance companies start partnering with investment banks to get more involved in the bonds market as well. This could definitely broaden the commercial mortgage market offering more loan products which would provide more long term fixed financing.

This is definitely an interesting trend worth following into 2012. We’ll keep you posted.


Posted December 16, 2011 by CBC REalta Group in CRE Trends

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