Life Companies Wary of Office Deals
Multifamily, industrial and even retail deals are getting financed, but urban and suburban office is still considered a challenged asset class.
Life companies have returned to the fold after waiting out the bulk of 2020 through the uncertainty of the pandemic. Making up for inactivity last year, these lenders are aggressively pursuing qualifying properties—emphasis on qualifying. Targeted deals look a lot different post-pandemic.
It might not surprise anyone following the CRE trends that multifamily and industrial are the top targets for life company allocations. Even retail deals with grocery and other daily-needs retailers are moving forward in the current market. “While indoor malls continue to be a casualty of the modern era, outdoor lifestyle centers with the right destination retail in place are also getting interest from multiple lenders,” Robert Slatt, a principal with Gantry’s San Francisco office, tells GlobeSt.com.
Self-storage assets are also a target for life companies. “Self-storage assets have emerged in recent years as a prime candidate for life company financing, and we are seeing more and more deals done for this asset class that once struggled to find its place due to underwriting, sub-par location realities and operative challenges to stabilization,” adds Slatt.
So, what assets didn’t make the list? Office properties, both urban and suburban, are still considered high risk for life companies. Slatt calls the deals “tricky” for lenders. “The urban areas in the major MSAs have too much uncertainty for a lender to get comfortable. It’s not only a question of when tenants are going back to the office, as we are finding out, but will they ever go back? The work from home migration of technology and professional service firms is still not a settled equation,” he says. “Hospitality remains totally dead for life companies and many lenders are still working through forbearance on many of their loans for this asset type.”
Despite eschewing office product, life companies are on track to meet allocations this year with deals in its targeted assets. “Life company lenders are full steam ahead for the remainder of the year. They didn’t meet their numbers in 2020, and that has them competing aggressively for business in 2021,” says Slatt. “They are forward-locking rates and offering favorable terms that will keep them competitive on deals for qualified assets they see as a priority, which ultimately bodes well for borrowers.”