WASHINGTON, DC-Increasingly, as the recovery takes hold, commercial real estate lenders are encroaching on each other's turf. Life insurance companies are offering longer terms, as are banks in many cases. CMBS, for its part, is pricing close to, or even better than life. Thus the appearance, every now and then, of life insurance company financing that stretches beyond the typical ten years.
The local market saw that with the 20-year, fixed-rate $181-million permanent loan a life insurance company recently provided for 1000 Connecticut Ave., N.W. It also saw it with the $27.8 million, 15-year term loan Prudential Insurance Co. of America recently provided for 1666 K St., NW, a 12-story, 286,000-square-foot office building on Farragut Square in Washington's DC's CBD. Cassidy Turley's Christian Miles, Philip Mudd and Bradley Geiger secured the financing on behalf of 1620 K Street Associates LP. They also, as it happened, secured the $181 million permanent loan.
To be sure, there was more at play with this financing than just competitive factors, Miles tells GlobeSt.com. "This is a family-owned building and the LTV is a very low 20%. Insurance companies love those kind of fundamentals."
Still, though, no loan is made in a void and it is worth examining the competitive environment life insurance companies are currently facing, especially as they gear up for 2013 allocations. For starters, "life insurance companies are more willing to stretch terms because pricing for long-term mortgages is still significantly better than what they can achieve in the corporate bond market," Miles says. And undoubtedly life companies are facing pressure from CMBS pricing, although life companies tend to finance at the lower end of the risk spectrum and CMBS tends to be more successful with higher leverage. "But CMBS pricing is dipping down to where life companies play now," Miles says.
Then again, he adds, CMBS typically doesn't do 15-year terms. "CMBS will offer a good rate on a low leverage deal but it can’t go 15 years."
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