It’s easy to see why life companies continue to plow money into commercial and multifamily real estate mortgages: They have provided strong returns, inflicted virtually no losses and match up perfectly with their long-term liabilities.
“Mortgages have proven to be really good, solid investments for life companies,” said Robert Merck, head of real estate investors for MetLife, the top life insurer in this space and the subject of a longer profile in this month’s Mortgage Observer.
Commercial and multifamily mortgage originations hit their highest levels since 2007 in the fourth quarter 2012, and are expected to increase up to $254 billion in 2013, according to research by the Mortgage Bankers Association released on Monday at its annual CREF/Multifamily Housing Convention & Expo in San Diego. In the fourth quarter 2012 originations were up 49 percent from the quarter previous. They were also up 49 percent from the same quarter in 2011. Overall, originations for the full year of 2012 increased 24 percent compared to 2011.
Record-low mortgage rates have helped to fuel the nation’s refinancing activity for residential homes. In July, the number of mortgage applications filed hit a three-year high. Freddie Mac also reported that 30-year, fixed-rate mortgages averaged 3.49 percent for the week ending July 26.
Likewise, attractive rates are fueling financing in the multifamily market, where financing for low-leveraged rental buildings has reached its lowest levels in decades. The result? Fierce competition among lenders looking to provide financing for the asset class, particularly in the Big Apple.
Chandan Economics and the Mortgage Bankers Association released data last week that points to continued improvements in the commercial real estate market.
Chandan released its Q2 2012 Bank CRE Default and Lending Report, which analyzed second quarter call report data. This data showed that the default rate on commercial mortgages held by banks had fallen to its lowest level since the middle of 2009—to 3.11 percent. This marked a 34 basis point drop when compared to the previous quarter.
According to data from DebtX, commercial real estate loans priced by the firm have risen steadily over the past 12 months, as treasury yields and credit spreads move in the opposite direction, which experts tell The Commercial Observer could be a sign of an overall improving economy.
DebtX said Wednesday that it had priced 51,399 commercial real estate loans with an aggregate principal balance of $616.1 billion during the first month of 2012. They collateralize 651 US CMBS trusts.