Life Insurance Commercial Mortgage Return Index Stabilizes

Chart courtesy of Trepp

Trepp, New York, said commercial mortgage investments held by life insurance companies remained positive in late 2020 for the third consecutive quarter.

Lifeco mortgage investment returns varied considerably last year, from negative 1 percent in the first quarter when COVID-19 erupted to 4.58 percent in the second to 1.22 percent in fourth-quarter 2020.

“The volatility in valuations caused by the pandemic appears to have receded, with returns having stabilized for the second consecutive quarter,” said Trepp Head of Data Consortia Initiatives Russell Hughes.

Income contributed 1.01 percent and appreciation added 0.21 percent in the fourth quarter, the report said.

Of the major property types, multifamily properties have performed best over the past 12 months with a 8.06 percent total return, followed by industrial at 7.54 percent and office at 6.45 percent.

Credit concerns remain evident among lenders, but have slipped from previous quarters, the report said. The overall delinquency rate decreased from 0.06 percent in the third quarter to 0.04 percent in the fourth. Lender deferrals and forbearance both fell during the quarter with only $24 million in interest capitalized compared to $33 million in the third.

Cumulative charge-offs on existing loans decreased by a net of $3.1 million to $16.7 million after an increase of $1.5 million for office properties and reversals of prior charge-offs totaling $4.5 million on retail properties, Trepp reported. The specific reserves for the portfolio increased by $342,000 to $148 million, or 0.098% of ending book value.

“While interest rates remain near record lows, signs point to lenders remaining cautiously optimistic about where the market is heading,” Hughes said.

The LifeComps Index includes nearly 8,000 active loans with a $151 billion aggregate principal balance. The weighted-average loan duration equals 5.2 years.