What Life Company Lenders Like Now

Mark Ritchie of Gantry on the asset categories these institutional capital sources are favoring this year.
Mark Ritchie by SRK Headshot Day

There is no doubt that 2020 will go down as one of the toughest years for unforeseen economic disruptions on record. However, disciplined commercial real estate lenders, and particularly life companies, were prepared to react, stabilize and get back to business.

Like the banking industry, life companies spent the second quarter of 2020 essentially working on forbearance matters and were able to work with borrowers to come up with short-term solutions in record time. Institutions also had to put money out.

Consequently, more dollars went into the safe asset classes like multifamily and industrial at the expense of office, retail and hospitality. For quality or qualifying assets with strong fundamentals, combined with an accommodative U.S. Treasury, interest rates were pushed down further for the favored asset classes—a very positive outcome for borrowers.

The second half of 2020 offered some promise for what we will see in 2021. Financing for office buildings and retail was significantly impacted due to the pandemic-related performance disruptions from remote work, social distancing and shelter-in-place orders. There were still significant opportunities for net lease and single-tenant credit assets in both classes, with bright spots for retail in necessity-driven, credit-tenant-oriented properties, and for the office sector, in credit-tenant net lease and medical office properties.

What life companies like this year

A number of our clients locked in historically low interest rates in late 2020 and early 2021. Even with the recent jump in treasury rates, rates are still very low. We are recommending to our clients that a comprehensive review of existing debt and asset goals should determine if maturing loans (or even near-maturing loans) can be replaced by low-cost debt currently being offered by the life companies lenders. This includes:

Industrial: Arguably, this asset class was the biggest winner in the new normal of the post COVID-19 economy. Allocation interest in this asset class is high, and for assets supported by strong market locations, fundamentals and operative performance, opportunities are significant and lender interest high.

Office: Credit-tenant net lease and medical office properties will continue to be favored by life company lenders where fundamentals warrant. Quality and well-leased office continues to attract interest when stabilized by occupancy and location, including expanding interest in key suburban markets seeing a boost in the new normal of the post COVID-19 workplace migration.

Multifamily: This asset class remains favored in 2021, with significant allocations pursuing long-term placements for quality assets at what remain historically low interest rates and extremely favorable terms. Competition for loans on stabilized assets with strong fundamentals is high, providing ample options to meet a variety of ownership and exit goals alike.

Self Storage: This hybrid asset class blends operative imperatives of industrial, multifamily and retail and has become an institutional darling. Strong performance in both downcycle and upcycle markets has proven out the fundamentals for underwriting these assets with a range of life company lenders.

Retail: Allocations are available for credit-tenant, net lease properties and properties meeting the “necessity” classification including grocery, drug and essentials anchored centers.

Based in Los Angeles, Mark Ritchie is a principal of Gantry, a national mortgage banking firm.