STILL THE ONE
APARTMENT FINANCE TODAY • MARCH 2008
Portfolio lenders, once the standard in multifamily lending, are now helping to fill the void left by a dormant CMBS market.
By Jerry Ascierto
Multifamily developers are getting reacquainted with an old friend in 2008.
Before the emergence of conduit lenders, institutional lenders like life insurance companies and pension funds dominated the multifamily debt industry. These portfolio lenders use their balance sheets to make loans and hold onto them, in contrast to conduit lenders, which bundle mortgages and sell them as commercial mortgage-backed securities (CMBS).
Since institutional lenders are typically conservative, requiring more cash down and featuring more stringent underwriting standards than securitization deals, they lost much market share to conduit lenders over the last two years.
But 2008 CMBS sales are expected to be less than half of the record $230 billion recorded in 2007, according to Moody’s Investors Service, and many institutional investors are re-emerging from the shadows to provide capital to multifamily developers.
“With the CMBS market being shut down for all intents and purposes, the life insurance companies are starting to step up and fill some of that void,� said Greg Leadholm, a managing director at Heitman, which manages pension funds and places debt on behalf of insurance companies.
Life insurance companies like MetLife and Prudential Financial and pension funds like those
managed by TIAA-CREF and Principal Financial have jumped back into the market for both long-term and short-term debt.
“The second half of ’07 was a very busy time for portfolio lenders, and my guess is that portfolio lenders’ share of the business has gone up,� said David Durning, Prudential’s managing director of originations. “Life insurance companies put out more money last year than they have in history.�
Prudential Financial’s institutional lending arm saw a big jump in multifamily loan production in 2007, to $1.2 billion from $845 million the year before. And Prudential wasn’t alone. In October 2007, insurance company lending for commercial real estate increased 41 percent over the previous October, to $4.8 billion, according to the American Council of Life Insurers.
That’s because portfolio lenders now have the pricing advantage over conduits. Permanent loan spreads over benchmark rates for strong, stabilized assets are in the 200 basis point range, which is about 100 basis points lower than what the conduits were offering in early February. For short-term, interim financing, most institutional lenders are pricing a strong multifamily deal at 300 basis points over the London Interbank Offered Rate, for a 6.85 percent rate in early February.
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