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CRE Finance World, Winter 2012

Roundtable: Outlook 2012 Michael Moran: Brian P. Lancaster: While there are some life companies who specialize in hotels, many One of the things I have heard is that there’s been increased com- have not been hotel lenders. I think the opportunities in hotels are petition. One of the reasons why the banks are under pressure. generally limited, if you are thinking about what the transaction volume needs to be and what the profile needs to be to attract life Michael Moran: company mortgage capital. There are some niche players that will On the margin there is competition, but I don’t think it’s the primary do well, but it’s not a huge opportunity. threat to insurers’ origination goals for 2012. I think the bigger threat is that the agencies become more competitive in the apartment Brian P. Lancaster: space and they regain market share in 2012. I think the other More specifically, are the life companies all chasing the same threat is lower supply of high quality loans, so that lenders are all high quality loans in gateway markets? Is pricing rational for competing in a small marketplace for those same loans. Eventually, these loans? What are the prospects of life company lending however, I suspect we will see a pick-up in economic activity that moving to higher leverage points, or into secondary locations, will drive transaction velocity and create the need for more high- or providing mezz capital for additional yield? quality credit. Michael Moran: Brian P. Lancaster: As I indicated earlier, in 2011, the supply of mortgage opportunities The reason you found the agencies less competitive this year, in preferred markets on preferred property types was robust enough you mentioned is in the apartment spaces. Why is that? to satisfy the life industry’s collective desires. My concern is that transaction velocity of high quality lending opportunities may decline Michael Moran: and that there will be a bit of a crowding out there. That said, I do A couple of reasons. One is that the borrowing community is not think there will be a major move among insurers to a higher interested in diversifying their capital source away from only risk profile, whether it be property type or geography. Specifically, agency debt. There is enough of a question mark over where the I don’t think there will be a big enough increase in risk appetite to agencies will be in the future, and what they will look at. Large solve the problem of the large amount of highly-levered maturing borrowers with lots of capital needs are looking to diversify their loans coming due in the next several years. I don’t think life companies capital source. Second is pricing. Life company spreads are very are going to be a big source of capital to those loans. much in line with the agencies and that resulted in strong multi- family originations for insurers during the first half of the year. But Brian P. Lancaster: many life companies have rate floors, unlike the agencies, and We have heard, as part of the discussion with the banks, that as Treasury yields fell during the second half, insurers lost that increasingly, because construction lending is no longer as competitive edge. attractive with the increase capital and given fragile state of the market, that it doesn’t make sense. So, we’re seeing increasing Brian P. Lancaster: number of commercial banks doing more fixed rate lending, Let’s talk about your views on CMBS vs. whole loans. What stabilized lending, and going out 5–7, and some even to 10 are your thoughts there? How do you look at the CMBS market years. Are they in a different space? Are insurance companies right now? bumping up against the banks in the market? Michael Moran: Michael Moran: I can talk about Allstate’s view. Our preference is to take our com- Life insurers have been bumping up against the banks more in mercial mortgage debt exposure through commercial mortgages, recent months. What construction lending banks are doing is where we are paid a premium for the liquidity and where we have limited to the multifamily sector for the most part. And they have control over the investment process and workout of the assets. a need for loan growth, so they’re moving more into where life CMBS was going down a path of becoming a large liquid market companies typically play. We’re hearing the same thing, some appropriate for an allocation within a large diverse bond portfolio… longer-term bank financings, some without recourse as well. today, it’s not. Our preference is to originate commercial mortgages CRE Finance World Winter 2012 20


CRE Finance World, Winter 2012
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