Key Takeaways from MBA Webinar: It’s a Wonderful Life Insurance Company Market

(Andrew Foster is Associate Vice President in MBA’s Commercial/Multifamily Group. He is a former Analyst with S&P Global Ratings and Fitch Ratings as well as a regular contributor to MBA NewsLink. He can be reached at afoster@mba.org.)

The Mortgage Bankers Association co-hosted a virtual panel with the California Mortgage Bankers Association and the American Council of Life Insurers on July 14. SS & C Technologies sponsored the event, which focused on exploring commercial real estate investment dynamics from the vantage point of life insurance company capital providers.

Five panelists represented firms with a variety of commercial real estate debt and equity strategies and buckets of capital including substantial life insurance company capital. PSRS President Michael Tanner moderated the dialogue, which focused on lessons learned from COVID, future appetite for deals and where the opportunities are.

Total commercial/multifamily debt outstanding equaled $3.93 trillion at the end of the first quarter; life insurance companies held a 15 percent share of that total, or $588 billion, the Mortgage Bankers Association’s latest Commercial/Multifamily Mortgage Debt Outstanding quarterly report said.

Webinar speakers included:

Kevin Pivnick, Managing Director, Blackstone

Greg Michaud, Managing Director and Head of Real Estate Finance, Voya

Jaime Zadra, Managing Director, PGIM Real Estate

Joel Traut, Managing Director, KKR

John Foley, Senior Vice President, Head of Mortgage and Real Estate, Lincoln Financial

Yelling Fire in a Crowded Trade: Multifamily is Competitive, Continues to Present Opportunity

There was broad agreement that multifamily remains a hot asset class and has been a good place to find attractive opportunities over the past few years. However, some speakers felt that finding the same quantity of investment options may be more difficult going forward. This may to some extent depend on what markets, properties and types of loans are being sourced (for example stabilized, pre-stabilized or value-add). The ability of private capital to lend in this space continues to be driven in part by the ebb and flow in the appetites and competitiveness of Fannie Mae and Freddie Mac.

Inflated Concerns Over Inflation?

The topic of how concerned investors are about inflation came up, as well as what the implications might be for commercial real estate’s long-term fixed-rate investors. There was some discussion about these concerns, but also the insurance company’s business model of utilizing investments such as commercial real estate debt to first and foremost match assets and liabilities for their own business. Further still, it was noted that with respect to commercial real estate, many property types maintain the ability to consider an increase in rents to combat inflation.

Forget Sinking or Swimming, This Market Loves to Float

Whether discussing multifamily, other property types, GSE programs or private capital, participants agreed there is a focus on floating-rate products in today’s low-rate environment.

Legends of the Fall: Insurers Saw Challenges in Pandemic, Fared Relatively Well

The panelists discussed and described how insurance companies and lenders fared during the 2020 recession. Noting the two most challenged property types, retail and hospitality, panelists described their various exposures across property and product types as well as how they navigated tough situations with their respective borrowers. A lesson learned by now certainly seems to be that COVID and its economic consequences accelerated trends already underway in the space markets.

What Lenders Want

Looking out to 2022, panelists described a wish list of items that would be beneficial for commercial real estate and its financiers:

• Improving property fundamentals to match the market’s improving sentiment and growth outlook.
• Increased transaction volume, which will demonstrate recovery/stabilization as well as lead to more financing opportunities.
• More balanced power dynamics between borrower and lender–today’s environment is very competitive for strong sponsors and properties, which enables borrowers to ask for very attractive terms from prospective lenders.
• Better visibility into office sector growth prospects, longer-term trends in space demand and values.
• Given the aggressive and competitive environment, the potential for a move to higher rate environment or any other activity that might create some volatility could be a welcome shift for competitive dynamics.