Life insurance companies are taking advantage of the volatile commercial mortgage market and tight lending strategies by Wall Street investment banks by becoming major lenders, the New York Times reported.
In the second quarter of 2011, life insurance companies underwrote $15.7 billion in new commercial mortgages — the largest number since the American Council of Life Insurers began keeping records in 1965.
“It is as if these guys died and went to heaven,” said Lawrence Longua, an associate professor at the Schack Institute of Real Estate at New York University. “Life insurance companies are pretty much the only game in town.”
Life insurance companies favor high-quality borrowers and trophy buildings. They also keep the majority of their loans on their balance sheets, the Times said. Investment banks are able to underwrite riskier loans because they pool their mortgages and issue bonds against them. In this market, however, lending is much less crowded marketplace.
“There is less competition,” said Robert Merck, a senior managing director and the head of real estate investments for Metropolitan Life, “which has allowed lenders like ourselves to put a lot of very good loans on the books for properties that meet our guidelines.” [NYT]