Commercial mortgage lending by insurers rose slightly in the first half of 2016, though their allocations to the sector decreased slightly, according to the latest survey by the CRE Finance Council and Trepp.
The 27 survey participants (including two new lenders) added $21.5 billion of new mortgages in first-half 2016. That was a $1.7-billion increase over the prior year.
Commercial mortgage holdings averaged 10.68% of total invested assets for survey participants in the first half of 2016. Holdings ranged from a high of 17.58% to a low of 2.21%.
Insurance companies compete with banks and the commercial mortgage bond market to finance commercial real estate, particularly multifamily property and office buildings, though they tend to focus on higher quality properties in primary markets.
The multifamily and office sectors led originations in the first half, with 28% and 25% of the total dollar volume, respectively. Retail and industrial represented 21% and 16% of total originations, respectively.
The credit quality of insurance companies’ mortgages, as measured by the new Commercial Mortgage (CM) Test Scores, appears to be good. Based on data collected on approximately 62% of new originations, a vast majority (93%) of the insurance companies maintained high concentrations to both CM1 and CM2 categories
Among other credit metrics, the weighted average loan-to-value ratio dropped by approximately 8 percentage points, indicating that borrowers had higher levels of equity. However debt service coverage ratio declined by 0.17 of a percentage point for new originations when compared to year-end 2015 levels. The weighted-average LTV and DSCR on new business loans as of first-half 2016 was reported at 51.4% and 2.07x, respectively.
While originations did not rise dramatically, insurers still appear to have refinanced loans held as collateral for mortgage bonds or in bank portfolios Approximately 94% of the new originations were fixed-rate loans and roughly 90% of the new originations came from “new business/financing,” which could include refinancing of maturing loans from elsewhere.
These breakouts are almost at the same levels from the year earlier.
The biannual survey tracked the performance of commercial mortgage investments across 27 insurance companies with a combined $217 billion in loan exposure.
The survey data provide investment performance results over a six-month period and serve as a benchmarking tool for participants. Members contributed data from their general accounts for the first half of 2016, as well as from subsidiaries in order to fully capture performance of any sub-performing or non-performing loans in these entities.h