Commercial Mortgage Returns Increase In The First Quarter

Returns on private commercial mortgage investments owned by life insurance companies rebounded from fourth-quarter 2016’s loss of 2.72% to generate a total return of 1.6% in the first quarter of 2017, according to the LifeComps Commercial Mortgage Index.

Income contributed 1.12%, while price added 0.48%.  Price return benefited from Treasury yield-curve movement and other valuation factors, including spread movement, credit migration and portfolio growth. The yield curve shifted upward for terms under three years, while the benchmark 10-year Treasury fell five basis points over the quarter to 2.4%.

The 12-month total return fell to 2.15% from 3.94% in the prior quarter, as first quarter 2016 rolled out of the calculation. Annual income of 4.62% was countered by price return of -2.47%. Higher Treasury yields and other valuation factors hindered annual price performance. The 10-year Treasury yield ended the period 62 basis points higher.

Of the four major property types, apartment loans fared best for the quarter, with a return of 1.74%, compared to 1.59% for retail and 1.49% for both office and industrial. For the year, industrial performed best, with a return of 2.29%, followed by apartments, at 2.24 percent, office at 2% and retail at 1.95%.

Participating life insurers include Allstate Life Insurance Co., CIGNA Investment Management, AXA Equitable, John Hancock, Northwestern Mutual, Principal Financial, Prudential Insurance Co. of America, Sun Life and TIAA.


Please enter your comment!
Please enter your name here