Even as the revival of the commercial mortgage-backed securities (CMBS) market and the outlook for bank participation in commercial mortgage lending remain uncertain, U.S. insurers will maintain strong roles as key participants in commercial real estate lending into 2012, according to
Insurers’ disciplined underwriting standards, reflected in low loan-to-value (LTV) ratios on recently financed deals and very low commercial real estate loan delinquency rates on their balance sheets, are an important source of continuing support for a healthy commercial mortgage market.
During the first half of 2011, commercial real estate financing commitments by life insurers such as MetLife and Prudential grew sharply, Fitch said. In the second quarter of 2011, commercial mortgage commitments by U.S. life insurers grew to $15.7 billion compared to $5.9 billion during the same period in 2010 according to the American Council of Life Insurance. Average LTVs on the deals were approximately 60 percent.
While recent insurance mortgage deals have averaged about $20 million, insurers are also likely to participate in larger transactions involving central business district office buildings and large regional malls. Fitch expects insurance companies to remain well positioned to provide mortgage financing on some larger deals, particularly in prime commercial markets such as New York, Washington, D.C., Boston and San Francisco.
Insurers' cost of capital advantage, as well as reduced execution risk, should continue to favor a shift toward insurance-financed commercial real estate deals in a still-fragile market facing uncertainty over the 2012 economic outlook.
For real estate investment trusts (REIT), the continued participation of insurance companies in secured lending during the financial crisis ensured access to capital at a time when unsecured borrowing costs were above 10 percent for even the strongest credits and refinancing needs were substantial, Fitch said. Although REITs do not face large scheduled maturities in 2012, the continuing participation of insurers as lenders on top-tier properties provides critical support to the market.
