Life Company Commercial Mortgage Returns Stabilize: Trepp

Credit concerns continue to dampen appreciation, according to the firm’s latest index.
Image by Gerd Altmann via

Commercial mortgage investments held by life insurance companies saw a 1.71 percent total return in the third quarter, according to the latest LifeComps Report from Trepp.

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The change (1.00 percent from income and 0.71 percent from appreciation) marks a noteworthy fall from the 4.58 percent return seen in the second quarter. Still, the total return in the third quarter was higher than in the first quarter (-1.00 percent), or the fourth quarter of 2019 (0.55 percent).

After two consecutive quarters with large swings in returns, the volatility in valuations caused by the pandemic appears to have receded, according to Russell Hughes, head of data consortia initiatives at Trepp.

“While interest rates remain near record lows, the persistence of credit concerns continue to dampen appreciation returns,” Hughes added.

Regarding those credit concerns, the overall commercial mortgage delinquency rate was unchanged from the second quarter, at 0.06 percent. “Lenders are continuing to grant deferrals and forbearance,” the report noted.

Russell Hughes, Vice President of Product Management – Banking, Trepp. Image courtesy of Trepp

In the third quarter, commercial mortgages totaling an outstanding balance of $3.9 billion had $33 million in interest capitalized. This was a small increase from the second quarter, when loans with an outstanding balance of $3.7 billion had $31 million in interest capitalized.

Of the major property types, multifamily predictably performed best over the past 12 months, with a total return of 7.18 percent, followed by industrial at 6.48 percent and office at 5.77 percent. Unsurprisingly, mortgage returns on retail properties trailed substantially, at 3.52 percent, and lodging mortgages were for practical purposes at zero, just 0.01 percent, also over the past 12 months.

The LifeComps Index tracks about 7,500 active loans with an aggregate principal balance of $149 billion. The weighted average duration is 5.29 years, and the average reported loan-to-value is 50 percent.

Some additional context 

As of year-end 2019, U.S. life insurers held commercial mortgage assets (not including mortgage-backed securities) totaling $555 billion, or 7.3 percent of the industry’s total assets of more than $7.5 trillion, according to the American Council of Life Insurers (based on data compiled from the National Association of Insurance Commissioners).

By comparison, the U.S. life insurance industry’s investments in actual real estate totaled only about $41.5 billion, or 0.5 percent of the total.

Read the full report by Trepp Inc.