The Real Deal Miami

Insurance companies retreat from commercial mortgage lending

By Michael Stoler | March 24, 2009 12:58PM

A number of prominent insurance companies, once the pillar of lending for commercial real estate, have become more selective, underwriting only certain real estate asset classes for new mortgage debt.

Last week at a conference held in New York City, representatives from Metropolitan Life Insurance Company stated that the company does not expect commercial mortgages to increase as a percentage of its total portfolio over the next year or so. The company intends to be extremely selective in making new real estate investments as liquidity is precious, interest rates on corporate debt have become attractive on a relative basis and real estate values likely have further to fall.

Investments in all property types will be under stricter scrutiny, but MetLife will be even more cautious with potential retail and hotel investments.

New investments are likely to be made only for “A” quality assets in stronger locations with a 50 percent loan-to-value ratio. During the fourth quarter of 2008, MetLife underwrote loans at an average loan-to-value rate of 53 percent, versus 61 percent in the year ending 2007 and nearly 70 percent earlier in the decade.

Prudential Mortgage Capital Company recently told investors that the company intends to highly scrutinize commercial real estate deals and that it is not willing to provide new mortgages at this time. Insurance companies with rolling maturing debt on good assets with good sponsors could still invest in new mortgages.

The appetite of life insurance companies to make loans on commercial real estate is weak and will be limited and highly selective with an emphasis on residential multi-family rental properties in major commercial business districts.

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.