Before collateralized mortgage-backed securities, one of the best sources of real estate mortgages came from insurance companies.
The Mortgage Bankers Association estimates that approximately $222 billion in direct mortgage loans are held by life insurance companies maturing through 2018.
Earlier this month, Commercial Mortgage Alert noted that loan originations by the 30 insurance organizations with the largest mortgage portfolios plunged by 35 percent in 2009, to $36.7 billion from $56.8 billion last year, according to its annual survey of lending by life insurers. The report notes that the total volume of outstanding loans by these 30 insurers is $260.8 billion, a slight increase of 3.7 percent from the prior year.
The top 10 originators of commercial mortgages in 2008 were Prudential, MetLife, Northwestern Mutual, John Hancock, New York Life, TIAA-CREF, Principal Life Insurance Company, Pacific Life Insurance Company, ING Group and Mass Mutual Financial Group. These insurers provided a total of $25.2 billion or 68.7 percent of all loans originated in 2008. Prudential was the number one originator with a volume of $4.63 billion, followed by MetLife with a volume of $4.51 billion.
Marc Haves, a partner at Haves Pine & Seligman, said, “Insurance companies who we have been doing business with for the past 20-plus years, have been exceptionally selective in adding mortgage debt to their portfolio. The only interests for new loans are typically very low leverage [50 percent loan to value] and to asset classes such as multi-family residential, industrial and grocery anchored retail.”
Last month at the New York Real Estate Summit, representatives of the insurance companies concurred that the window for obtaining mortgages remains open to a select group of established real estate borrowers. The insurance companies who remain committed to the market are now charging rates from 7 to 8.5 percent for terms of five to 10 years. Few, if any, will provide financing for hotels, while financing for office buildings is limited and available only to those that are well-respected and highly capitalized.
A number of insurance companies which provided mortgages in 2007 and 2008 are phasing out of lending, including Aegon. Also, AIG is basically out of lending this year and Principal, one of the most active lenders in 2008, will probably reduce its volume by at least 50 percent.
One of the few insurance companies that increased its volume in 2008 was triple-A rated TIAA-CREF. The national financial services organization has more than $350 billion in combined assets under management and is the leading provider of retirement services in the academic, research, medical and cultural fields. Last year, the company provided $2.3 billion in mortgages. Rick Coppola, managing director at TIAA-CREF, said, “We continue to be active and will entertain requests for loans throughout the country. We prefer multi-family residential and have and will continue to provide financing for all asset classes.”
One thing is certain, 2009 is a time for insurance companies to be in the driver seat for mortgage financing.
Michael Stoler is a columnist for The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.