{"id":1004126364,"date":"2015-09-09T05:32:23","date_gmt":"2015-09-09T13:32:23","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004126364"},"modified":"2020-05-11T21:45:09","modified_gmt":"2020-05-12T05:45:09","slug":"september-issue-finance-investment-stacking-up","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/september-issue-finance-investment-stacking-up\/","title":{"rendered":"September Issue: Finance & Investment\u2014Life Lessons"},"content":{"rendered":"

By Poonkulali Thangavelu, Contributing Writer<\/em><\/p>\n

\"The<\/a>

The Hard Rock Hotel at Universal Orlando Resort in Florida, one of three trophy properties for which MetLife originated $505 million in financing.<\/p><\/div>\n

Slowly and steadily, life insurance companies are increasing their commercial real estate lending. Market participants expect the industry\u2019s current expansion to run for at least two or three more years, signaling a further pickup in life company lending volume.<\/p>\n

\u201cIt\u2019s a robust environment,\u201d said David Hendrickson, managing director with JLL\u2019s Capital Markets Group<\/a>. \u201cLife insurance companies still have a need to place money in real estate and have still been very cautious in that. The underwriting is solid. And life companies certainly aren\u2019t being too aggressive, where it creates some kind of worry in my mind that things are getting overheated.\u201d<\/p>\n

The Mortgage Bankers Association<\/a>\u2019s quarterly survey found that life companies\u2019 loan volume rose 29 percent year over year during the first half. That increase kept pace with commercial banks, which likewise boosted originations 29 percent, and edged out a 22 percent uptick in CMBS volume. (Of note, Fannie Mae<\/a> and Freddie Mac<\/a> loans surged 177 percent.)<\/p>\n

MetLife<\/a>, for example, generated $6.7 billion in commercial real estate lending volume during the first half. That puts the financial services giant on track to exceed last year\u2019s total volume of $12.1 billion, which was, in turn, an uptick from $11.5 billion in 2013. For its part, Lincoln Financial Group has grown its commercial real estate loan portfolio from $6.9 billion in 2011 to more than $8 billion as of the first half. That amounts to a 17 percent increase in the face of plentiful prepayments.<\/p>\n

\u201cBased on life company experience, the performance of commercial real estate has been really, really good,\u201d said Donald Dibble, senior vice president for Lincoln Financial Group\u2019s mortgage and real estate operations in Greensboro, N.C. \u201cIn the life company space, there has been a little bit of windfall, or a positive carry cost, from the standpoint of risk-based capital. Risk-based capital that\u2019s being held by life companies went down substantially in the last year.\u201d<\/p>\n

Healthy Balance<\/strong>
\nCommercial property fundamentals still look favorable to life companies, offering a healthy supply\/demand balance. While multi-family remains favored, Dibble is seeing \u201cslight bubbles\u201d in some higher-end apartment communities but not in the affordable housing sector.<\/p>\n

Melissa Reagen, Morristown, N.J.-based director of research for MetLife Real Estate Investors, also sees relatively strong supply for the hotel and multifamily space compared to other asset categories. \u201cBy and large, supply has been pretty contained,\u201d she said. \u201cI would say that there is no one property type that is ahead of another in terms of what we favor.\u201d<\/p>\n

Hendrickson reports that retail properties are making a comeback with life companies after falling out of favor because of the recession and the growth of online sales. Life companies are always interested in grocery-anchored centers, though they are hard to come by, as well as in industrial properties. However, life companies tend to avoid tertiary markets, and relatively few will lend on hotel properties, because a strong operator is crucial.<\/p>\n

Generally speaking, even the most selective life companies are willing to lend on blue-chip properties in attractive locations. In late July, MetLife announced that it had originated a $505 million loan on three trophy hotels at Universal Orlando Resort in Florida: Loews Portofino Bay Hotel at Universal Orlando, Hard Rock Hotel and Loews Royal Pacific Resort at Universal Orlando. The hotels encompass 2,400 guest rooms and more than 180,000 square feet of conference space.
\n\u201cThese are proven properties in a major market for MetLife,\u201d explained Robert Merck, senior managing director & global head of real estate, in a statement issued at the time of the announcement. \u201cThe ownership group has proven hotel expertise, considerable financial strength and demonstrated commitment to capital reinvestment.\u201d<\/p>\n

Prudence & Custom Products<\/strong>
\nLife companies enjoy a well-earned reputation for prudence. They are portfolio lenders, and because they invest to meet their insurance liabilities, they favor low loan-to-value ratios and conservative underwriting. Lincoln Financial, for one, doesn\u2019t go beyond a 75 percent loan-to-value ratio. Risk-based capital rules for life insurance companies also favor a minimum debt-service coverage ratio of 1.5 and high penalties for borrowers that fall short of the standard.<\/p>\n

In a recent break from a recession-era practice, life companies are increasingly willing to make forward commitments to lock in interest rates. They are also more open to invest in preferred equity so that borrowers can get beyond low loan-to-value limits. Mezzanine loans are similarly designed. A product offered by Lincoln Financial provides as much as 90 percent of a project\u2019s acquisition or development cost. Usually issued in conjunction with a construction loan, the mezzanine loan is secured by a sponsor\u2019s ownership interest.<\/p>\n

\u201cBecause life companies are portfolio lenders, there is more room for customization,\u201d said Tom Kim, MBA\u2019s senior vice president for commercial and multi-family. \u201cEssentially, lending depending on a particular borrower as well as the particular asset can be considered.\u201d<\/p>\n

Although insurance company lending volume is on the rise, the prospect of interest rate hikes by the Federal Reserve raises questions about how long that upward trend will continue. Assuming that cap rates will rise along with interest rates, property values could weaken.<\/p>\n

However, market participants estimate that interest rates would have to increase 100 basis points before affecting property values. And they don\u2019t expect that to happen in the next year or two.<\/p>\n","protected":false},"excerpt":{"rendered":"

Insurance companies boost CRE lending.<\/p>\n","protected":false},"author":1219,"featured_media":1004126367,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[21783],"tags":[],"class_list":["post-1004126364","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investment"],"acf":[],"yoast_head":"\nSeptember Issue: Finance & Investment\u2014Life Lessons - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/september-issue-finance-investment-stacking-up\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"September Issue: Finance & Investment\u2014Life Lessons\" \/>\n<meta property=\"og:description\" content=\"Insurance companies boost CRE lending.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/september-issue-finance-investment-stacking-up\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2015-09-09T13:32:23+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-05-12T05:45:09+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2015\/08\/UEHRH_65279630_2_-_HRH_-_Front_Entrance.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"2250\" \/>\n\t<meta property=\"og:image:height\" content=\"1500\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Poonkulali Thangavelu\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/september-issue-finance-investment-stacking-up\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/september-issue-finance-investment-stacking-up\/\",\"name\":\"September Issue: Finance & Investment\u2014Life Lessons - 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