Life Companies: What Riskier Lending Could Mean in the Next Cycle


“I’ve seen more people fail because of liquor and leverage … You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.” —Warren Buffett

Numerous articles are devoted to the CMBS industry and its effect on the larger real estate landscape. With total CMBS lending at $99 billion in 2014, this capital flow has helped buoy the market and keep cap rates low ever since the dark days of 2009. However, it is the life insurance companies that are the rock that large loan deals are built on. Behemoths like Prudential and MetLife individually lend over $4 billion annually, through good times and bad, going back to the 1980s, before CMBS was even a thought.  Read More


Chairman of Signature Bank Says Refinance Now

Bloomberg Tower (Rian Castillo)

Scott Shay, chairman of New York-based Signature Bank, has a simple message: now is the time to refinance. Mr. Shay urged borrowers to think about the combination of rising interest rates and low cap rates Wednesday morning in his keynote speech at the Real Estate Services Alliance’s Commercial Lender’s Forum. The event was held at Bloomberg LP’s offices in Manhattan.

Mr. Shay said that he would advise clients who aim to refinance, but want to wait until 2016 or 2017 and avoid making prepayment penalties, to do so now. Read More

Mortgage Observer

Commercial Property Markets in a World of Rising Rates

Sam Chandan.

More than three months after the summer’s initial spike in Treasury yields, commercial real estate investors are breathing a little easier. Third-quarter 2013 data show a modest impact on cap rates and borrowing costs from higher interest rates; neither increased in lock step with their baseline costs of capital. In actively contested segments of the market, including most institutional markets, cap rates were flat or increased only slightly during the quarter. In the extreme, cap rates for the most coveted assets inched lower. 

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Retail Credit Quality Will Strain as CMBS Issuance Surges

Sam Chandan.

Fueled by investors’ renewed appetite for risk and the relative stability of bond yields, CMBS issuance in 2013 is pacing far ahead of last year. By early May, volume had surpassed $30 billion, roughly three times the 2012 year-to-date tally. An uptick in the number of well-qualified borrowers is only part of the story. As it expands, the credit quality of the larger underlying pool shows signs of an increasingly flexible approach to underwriting. Too many investors are unfazed by the credit drift, largely content that anchoring to existing cash flow obviates risk along other dimensions. Fitted with blinders, those investors run the chance of being outflanked by new drivers of loss, including inadequate cushions against rising interest rates. As the cyclical attention to risk dissipates, a longer list of ratings agencies in the post-crisis era still brings fresh perspectives to the marketplace. It has also invited a new round of ratings shopping. Read More