Jeff Coyne
Director, GRS | Corteq
(510) 962-9534
[email protected]
Recently, I attended the Mortgage Banker Association’s CREF 2017 multifamily conference in San Diego (MBA CREF17) along with some other GRS Group professionals.
The conference was a great opportunity to meet with client and peers, reconnect with professionals from all over the country, and sit in on meetings and information sessions covering a wide variety of property, lending and borrower types. This blog will focus on a single session I attended of particular interest – specifically, the importance of life-insurance companies in the current commercial real estate lending environment.
The session, titled “The Future of Companies in Commercial Real Estate,” had panelists from a range of lenders including Stancorp Mortgage Investors who loaned out $1.7 billion last year, PPM Finance (who reportedly completed $2.3 billion of transactions) and Metlife who financed over $14 billion in deals in 2016.
My notes follow:
Retail
PPM, for one, is concentrating on retail real estate and is very Intent on current and future use. The firm likes experiential retail and entertainment concepts in particular, such as restaurants and brew pubs. There is a question to the sustainability of these concepts over the long term, though, if the economy turns and consumers don’t want to spend to go out.
Just under half of Stancorp’s deals are retail related. This company likes to play it safe, investing in strip centers and service retail. They consider these to be more “recession-proof” and are bullish on the type and size of retail they do – and will continue to do.
Metlife pointed out that many power centers may need to be repurposed for different uses after the closure of many big-box stores, and are very intently following the changing nature of the retail landscape. The firm also sees a future in lifestyle centers but says the old adage “location, location, location” will always take precedence..
Office
Metlife is focused on urban assets as CORE is very competitive. However, they have some concern about overbuilding in some locales and will look at each deal individually, but still like office.
Stancorp is bullish on medical office. They, unlike Met, are not fans of suburban assets because of corporations shrinking their employee counts and because there loan sizes mean less desirable, smaller urban properties.
PPM pointed out that technology is changing the sector and making big leaps in promoting the creative-office movement. The problem with this sector, according to its executives, is that urban offices are tricky to fund because location is very important, and urban areas have high-priced real estate.
Industrial
PPM likes older vintage facilities. The company also sees warehouse and distribution centers as the best performers in the current economy and overall CRE landscape – nit concerns with the current administration policies from tax to immigration to labor could quickly change the status quo.
For its part, Metlife expects commerce to pick up, especially with the continued evolution of online shopping. The firm does have some skepticism though, based on uncertainties about border protection and trade policies that could be enacted by the new administration.
Stancorp is interested in investing in older warehouses. But the firm is also upbeat about the sector as a whole, pointing out that warehouse rents are increasing across the board.
Multifamily
The current darling of the CRE landscape remains a property type these firms would love to do more of. However, agencies are the main players and dominate sector financing. With that said, all three – PPM, Metlife and Stancorp – remain interested and willing to fund these deals across the board when it fits in their specific loan sizes and requirements.
So, in conclusion, we will see what happens with life-insurance investment in commercial real estate for the remainder of 2017. All report 2017 allocations of as much or more than 2016. Unless there is an unforeseen downturn in the economy, or a dip in CRE fundamentals, there is no reason to think that these firms’ appetites will decrease. Life Company lenders across the board will increase allocations to commercial properties, and should play a bigger role than ever in CRE finance.