With the resurgence in commercial mortgage-backed securities (CMBS) stalled and banks' future participation in commercial mortgage lending in question, U.S. life insurers will likely remain a main cog in the commercial mortgage system through next year, Fitch Ratings says.
Insurance companies will continue to be an important source of continuing support for the market, especially if weaker demand for CMBS deals and a more limited role for Fannie Mae and Freddie Mac in the multifamily sector limits sources of growth in commercial mortgage origination, Fitch says. The rating agency has praised the companies' disciplined underwriting standards and relatively low volume of distressed loans.
Commercial mortgage commitments by life companies such as MetLife and Prudential grew sharply in the first half of the year. In the second quarter, commercial mortgage commitments by insurers grew to $15.7 billion compared to $5.9 billion during the same period in 2010, according to the American Council of Life Insurance.
Life companies, whose recent mortgage deals have averaged about $20 million, will likely be pivotal participants in larger transactions involving central business district office buildings and large regional malls, Fitch says. The agency expects insurance companies to remain particularly well positioned to provide financing on large deals in prime commercial markets, such as New York; Washington, D.C.; Boston; and San Francisco.
"Insurers' cost of capital advantage, as well as reduced execution risk, should continue to favor a shift toward insurance-financed commercial real estate deals in a still-fragile market facing uncertainty over the 2012 economic outlook," Fitch says.