Special Report: Commercial Mortgages Returned 4.7% for Life Companies, Pension Funds in 2012

By Keat Foong, Finance Editor

Life companies and pension funds increased their market share of commercial property financing last year despite ongoing industry deleveraging, and the mortgage loans yielded a total return of 4.7 percent for the institutions in 2012.

According to the Giliberto-Levy Commercial Performance Index, 25.6 billion in new permanent mortgages were originated in 2012 by institutional balance-sheet lenders. The Index principal balance ended 2012 at a total level of 180.6 billion, compared to 178.7 billion in 2011. The Giliberto-Levy Index is a private debt market index that tracks senior loans made by balance-sheet lenders, primarily life companies and pension funds.

“The good news here is that the life company/pension fund activity is actually increasing and gaining market share in the overall commercial space,” said Michael Giliberto, co-founder of the Giliberto-Levy Commercial Performance Index. He noted the increase in principal balance was occurring at a time when the commercial property sector was still deleveraging.

Speaking at a webinar reporting on the Giliberto-Levy 4Q Index, Giliberto noted that office and industrial lending by the institutions lost market share last year, while apartment lending by the institutions gained share. Office mortgages comprised 26.3 percent of total mortgage lending by the institutions, industrial made up 12.6 percent, and apartments were 20.1 percent of the total. Sixty percent of the institutional senior loans consist of five- to seven-year loans.

The Giliberto-Levy Index showed total returns from the balance sheet loans was 4.7 percent for the institutions in the whole of 2012. Giliberto noted that this return was higher than 10-year Treasury returns.

The Index showed that while 10-Year Treasury yields increased from 1.65 to 1.78 percent in the fourth quarter, 10-year mortgage spreads narrowed from 2.60 to 2.35, resulting in a net decrease in mortgage yield of 0.12 percent for the institutional lenders.