Driven by growing COVID-19 related credit concerns,  commercial mortgage investments held by life insurance companies posted a -1.00 % negative return for the first quarter of 2020, according to a Trepp LifeComps report released this week. 

The total returns on those commercial investments is down significantly from a .55 % return on commercial loan investment portfolios for the fourth quarter of 2019, according to Trepp,  a leading provider of information analytics and technology for structured finance, commercial real estate, and banking markets.

The total value of approximately 7,600 active commercial real estate loans held by life insurance companies dropped by $3 billion in just three months  from $154.5 billion to $151.5 billion it what it called "a steep decrease" from previous quarters, Trepp reported.

The report said that the negative price appreciation was "primarily being driven by credit risk."

The loans are tracked in Trepp's Commercial Loan Index — the only published benchmark for the private commercial mortgage market based on actual mortgage loan cash flow and performance data. The data is collected quarterly from participating life insurance companies.

The average quarterly return for loans in the LifeComps index since 2000 has been 1.6%, according to Russell Hughes, head of data consortia initiatives at Trepp.

 Hughes said the two key components that drive the market value of the loans are interest rates and credit quality.  "Because the loans in the portfolio are primarily fixed rate, the value of the loans tend to move inversely to interest rates – decreasing interest rates increase the value of the loans," he said.  

 "For the most recent quarter, interest rates plummeted which in the absence of anything else, would normally have significantly increased the market value of the loans and thereby increased the total return," Hughes explained.  "However, the interest rate plunge was caused by the rapid deterioration of economic conditions which significantly increased the concerns for future credit performance (even though no loans had missed payments)."  

"Despite the significant drop in treasury yields, credit concerns materially pushed down the value of the loan portfolios," Hughes added. "While credit performance remains strong with no loans in the LifeComps Index being delinquent as of March 31, 2020, expectations about future credit performance is reflected in the specific reserve levels for these portfolios, which is up over 300% from the end of Q4 2019."

"While these loans are among the highest in credit quality across the [commercial real estate] industry, they are not immune to the disruptions that the economy is currently experiencing," he said. 

The full report is available at



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R. Robin McDonald

Daily Report reporter R. Robin McDonald's journalism career includes stints as a staff writer at The Atlanta Journal-Constitution, The Fort Worth Star-Telegram, The Wichita Eagle, and The Anniston Star and as a trial tracker at CourtTV and CNN. She is the author of two true crime books -- Black Widow: The True Story of the Hilley Poisonings and Secrets Never Lie: The Death of Sara Tokars.