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CRE Finance World, Winter 2012

Roundtable: Outlook 2012 won’t be a competitor with their borrower in the capital stack. They Brian P. Lancaster: want someone who doesn’t come in with the intent of a loan-to- What would account for the increase? Any shift in the types of loan strategy. market or lending that insurance companies are doing? Brian P. Lancaster: Michael Moran: Are borrowers viewing mezzanine lenders differently now? The major reason is the generally higher yields available on commercial mortgages compared to other fixed-income alternatives, such as Jack Taylor: corporate bonds or private placements. Regarding the potential for That’s very decidedly happening. The mezzanine lenders previously shift among portfolio lenders, my sense is that most life insurers were viewed in the borrowers’ minds as just another source of are pretty comfortable in the risk that they are taking today. There’s capital and not in any way a potential future relationship that they been tremendous opportunity in the high quality loan market. I don’t may have to rely upon. Today, it’s very much in the forefront of think there’s a need or desire to press very hard on the risk lever their minds who their lender is. As I was saying with respect to in 2012 so long as high quality loans are available. The general the commercial bank senior lenders, the borrowers also do not outlook is that yields will remain low in the marketplace across the want a predatory-lending type, nor an equity competitor, as their relative value spectrum, so commercial mortgage yields will remain lender. They don’t want someone who goes into the deal intending attractive in 2012. There’s the desire in the life industry to increase to take over the property. We have seen that quite a lot. There will exposure to mortgages, but the general economic outlook is fairly be potential bidders for lending on a particular property that get risky, and so there is not a great appetite to add risk overall. excluded because they are either affiliated with a competitor or they have a reputation for predatory lending with a loan-to-loan Brian P. Lancaster: strategy. It wasn’t on the minds of many borrowers three or four In terms of any property types, are there ones that you would say years ago. It is very much on their minds today. you are favoring as opposed to others that you might not want to participate in? Brian P. Lancaster: Thanks, Jack. Mike, could you give us a perspective of the life Michael Moran: insurance companies? What do you see life company and life We like apartments today. The fundamentals remain favorable and, home allocations looking like in 2012? Will it be more or less unlike past years, the industry has had more than its fair share than it was last year? of opportunity to lend on apartment buildings in 2011. With the long-term role of the agencies in question, borrowers have been Michael Moran: looking to diversify their source of debt capital and have done My sense in talking to our brethren is that overall allocations in the more business with life companies. The agencies have become life insurance industry will be up moderately in 2012 versus 2011. more competitive in recent months and there’s a growing pipeline I don’t think that’s true of everyone but the larger life companies of multifamily projects breaking ground, but apartments are still a are anticipating stable to increasing volumes, so it looks like it will preferred stable property type for many lenders. In retail, life insur- be an up year. ers generally remain defensive, preferring necessity-based retail for the most part. In office, insurers also are selective, lending in Brian P. Lancaster: core market locations over suburban and secondary locations, a Five percent or so? general theme that is likely to persist. Putting out sizeable volumes of industrial loans is more difficult, given their smaller average loan Michael Moran: request. But certainly, for insurers that can take a smaller loan size and or can aggregate a portfolio of industrial loans, I think it will It might be more than that, might be 10 to 15%. If the life industry remain an attractive spot for 2012. did $55 billion in 2011, which is the consensus number coming out of life companies this year, I could see the industry Brian P. Lancaster: doing up to $65 billion next year. And nothing in hotels? A publication of Winter issue 2012 sponsored by CRE Finance World Winter 2012 19


CRE Finance World, Winter 2012
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