Life insurance companies continue to remain aggressive in the fourth quarter, underscoring an increasingly active year for that sector of the debt market.
Last week, for instance, Prudential's general account division loaned $103 million to Fairfield Residential Apartments for the refinancing of two communities in Renton, Wash., a seven-year fixed-rate execution. Life companies now hold about $51 billion, or 6 percent, of all multifamily mortgages, after seeing a $576 million increase between the first and second quarter of 2012, according to the Mortgage Bankers Association (MBA).
The sector continue to give the government-sponsored enterprises a run for their money in the permanant debt arena. “Some of [the GSEs'] competitive advantages are starting to erode,” says Gary Mozer, CEO of George Smith Partners.
Companies like Prudential and MetLife have stepped up to compete with Fannie and Freddie by trying to be less conservative in their underwriting, such as by offering more flexible prepayment penalties. And where Fannie and Freddie were competitive on supplemental funding, some life insurance companies have stepped up to provide this option, as well.
Yet, the traditionally conservative sector continues to target only the best of the best, cherry-picking the most desireable deals. “Life companies will be a good source of capital in the foreseeable future,” says Mitchell Kiffe, senior managing director at CBRE Capital Markets. “Life companies are very disciplined commercial real estate investors; they tend not to get caught up in the market. They weathered the downturn very well.”
Although life companies do not have as much money in apartments as they want, they’re getting creative and stretching for good deals to round out their portfolios, according to Mozer. In particular, they continue to compete on development deals by using construction-to-permanent loans as a way to capture more long-term business. While the FHA offers a similar product, the Sec. 221(d)(4) program, most borrowers have difficulty dealing with the FHA's long turnaround times.