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WASHINGTON, DC-Life insurance companies, along with other balance sheet lenders and alternative forms of capital, have been stepping into the breach created by the CMBS markets’ seizure last year. For the most part they have managed to keep most low-levered projects going and, increasingly in some cases, provide funds to new developments that had been in the pipeline. But as events continue to unfold in the economy and capital markets, some in the industry are beginning to wonder how long life insurance companies will continue to lend out the commercial whole loans that are fueling so many projects.

Allstate, to give one example, is not a happy indicator of future behavior. While the firm will not provide specifics about its allocations, Sam Davis, senior managing director and head of real estate for Allstate’s commercial real estate investment activities, tells GlobeSt.com that this year the firm will surely lend less than last year’s record of $2.9 billion.

Michael Yavinsky, SVP with Washington, DC-based Walker & Dunlop, tells GlobeSt.com that a few life insurance companies are sitting on the sidelines of the real estate investment community, in contrast to the stepped-up activity of other investors. “Some aren’t selling their life insurance products that create investable cash, some see relative value in other sectors, some prefer to be in cash — there are a variety of reasons why this is so right now,” he says.

There is a school of thought that once the life insurance companies that are actively lending to real estate close their books for the year, the CMBS markets will have no choice but to jump-start. Yavinksy says that is a possible scenario, especially as those life insurance companies that are active are likely to fill their book of business sooner than usual this year because of the competition for their dollars. By extension, though, that doesn’t necessarily mean the CMBS markets will start up again – if only because the inactive life insurers might well choose that time to enter the markets.

Deals are still getting done now, he adds. “Life insurance companies can afford to be a lot more pickier about the deals they invest in.”

Indeed, this is the prevailing view in the capital markets. Thomas Howland, managing director of Perseus Realty Capital, also based in the District, tells GlobeSt.com that while life insurance companies are definitely stepping into the breach created by the conduits’ withdrawal, they are looking for a certain type of deal to finance. “Lower LTCs, deals that have strong cash flows and strong sponsors, for instance. In this type of market there is a flight to quality for sponsors, for markets, and a move to scale back in general from anything else.” Deals on the edge, he says, are not getting done.

At the same time, Howland says, a handful of insurers are cautiously shifting some of their focus to include JV positions in real estate deals. “Life insurance companies are taking advantage of the opportunities available now that there is not as much competition for them in the market,” he says.

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