Insurance companies, investment banks return to mortgage financing game

By Michael Stoler | November 02, 2009 06:20PM

While the major money center banks continue to limit financing for commercial real estate, a number of insurance companies are entering the game to provide much needed long-term mortgage financing.

Earlier this year, insurance companies were providing mortgage financing at rates in the range of 7.5 to 8 percent. More recently, in the fall of 2009, rates have dropped to approximately 6.5 percent, according to guests on my television show. The preferred asset class for financing is residential rental apartments, office buildings in major urban markets, well-anchored grocery retail shopping centers and established retail malls.

Last month, the owners of the ongoing redevelopment of the Cross County Shopping Center in Yonkers obtained a five-year fixed-rate mortgage of $135 million. The financing was provided by Prudential Mortgage Capital and New York Life. As part of the $225 million redevelopment, the mall will be converted into an open-air shopping center. Upon completion, slated for the end of 2010, the shopping center will total 1.2 million square feet.

As I reported in July, SL Green Realty refinanced the Graybar Building, a 30-story, 1.2 million-square-foot office building at Grand Central Terminal on Lexington Avenue between 43rd and 44th streets. The new leasehold mortgage was provided by TIAA-CREF, which obtained a $145 million leasehold mortgage for a fixed rate of 7.5 percent that matures in 2016 with two one-year options.

While volume of transactions is down by nearly 50 percent this year, insurance companies, including Northwestern Mutual, Prudential Financial Network, TIAA-CREF, Guardian, John Hancock, Principal Financial Group and MetLife, expect to double the volume of production in 2010. These insurance companies are expected to compete next year with commercial mortgage conduits and securitization financing which are now in early stages. Expect investment banks, which include JPMorgan Chase, Goldman Sachs, RBS and Cantor Fitzgerald, to be the first to provide 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.