Prudential is out to shatter the notion that all life insurance companies are shrinking violets in 2009.
While most of its peers are expected to scale back their exposure to commercial real estate this year, Prudential Mortgage Capital Co. (PMCC) continues to steadily evolve.
The company views the current market environment as an opportunity to expand and gain new business, especially from borrowers who have been affected by the lending industry's mass consolidations.
“This is a time to gain new relationships,” says David Durning, PMCC's senior managing director of originations. “We're expecting to have growth in the portfolio, and that really reflects the confidence and belief of Prudential's team that many opportunities out there today are tremendous.”
PMCC lends more to the multifamily industry than any other life insurance company, originating between $3 billion and $4 billion in multifamily debt annually—and sometimes more. The company originated $4.45 billion in 2007, according to the Mortgage Bankers Association.
About 20 percent of PMCC's portfolio is multifamily, whereas the average insurance company's holdings are closer to 15 percent, according to the American Council of Life Insurers. And that percentage could grow in 2009. PMCC has a lending appetite of about $7 billion for 2009 across all commercial property types, with $4 billion earmarked from its general account and $3 billion from its agency platforms.
PMCC has maintained a steady volume of multifamily debt over the years as it altered its approach to the market.
The company was an early participant in the commercial mortgage-backed securities (CMBS) market, and established its own conduit in 1997. Three years later, it acquired WMF Group and its Fannie Mae and FHA licenses. And in 2004, the company established its affordable housing division, which offers loans from all three agency programs.
The company exited the conduit arena in 2008, but it picked up the slack with record years from its Fannie Mae and affordable housing programs.
PMCC originated more than $2 billion in Fannie Mae loans in 2008, a 21 percent increase from 2007. Fannie Mae loans accounted for 61 percent of all apartment loans the company originated last year, up from 47 percent of all non- CMBS apartment loans in 2007.
The company also originated about $467 million in affordable housing deals in 2008, a 136 percent increase from 2007. And PMCC processed about $307 million in FHA loans last year, making it the No. 2 FHA lender in the nation overall.
Prudential uses its balance sheet to complement its agency programs, often by providing bridge loans to unstabilized properties before exiting to a permanent agency loan.
“We look at the agencies as a very important part of what we do, but it's one part of the puzzle,” says Durning. “We have other capital sources that are synergistic.”
Unlike most insurance companies, Prudential is still willing to go up to 65 percent loan to value in loans made off of its general account book of business. The company offers five-, seven-, 10-, 15-, and even 20-year loans, and the longer the term, the more competitive the rate it can offer.
PMCC's plans to expand its portfolio this year stands in stark contrast to not just its life insurance company peers, but also its greater competition among all financial institutions, indicating that every crisis presents an opportunity.