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CRE Finance World, Summer 2013

A publication of Summer issue 2013 sponsored by CRE Finance World Summer 2013 43 The following exhibits present descriptive statistics about the portfolio of loans studied in this report. Exhibits 1, 2, and 3 present information on loans by company, origination year, and size. Exhibit 1 Number of Loans by Originator 1972–2011 Exhibit 2 Number of Loans by Origination Year Exhibit 3 Average Loan Amount by Origination Year The average loan size of life insurers’ commercial properties has trended up over time, increasing from $3.3 million in 1972 to $35.1 million in 2011. Most loans added were in the more-than-$8 million category, which comprises about 40% of the total loans in the study. This category has the lowest default rate, while the $2- $4 million category has the highest default rate (Exhibit 4). This is different from the previous studies, which showed the smallest loans had the lowest default rate. This change is due to the fact that there was a significant increase in large loans but fewer new defaults added in the study. Exhibit 4 Loans Originated and Default Rates The loans in the study are distributed across regions fairly evenly with slightly higher percentages in the West Coast (25%). The West Coast also has the lowest default rate by loan count, while the South Central region has the highest default rate. Defaults by Origination Cohort This analysis adds 46% more loans to the last study, 8,269 new loans, but the number of defaulted loans increased just 3%, 99 new defaults. In total, we examined the credit performance of 26,247 individual loans. In the previous study, about 2,700 (15.3%) of the 17,978 total loans had defaulted by 2002. In our updated analysis about 2,800 (10.8%) of the 26,247 loans defaulted by 2011. Exhibits 5 and 6 present default rates by origination year. The “Great Recession” did not cause a meaningful increase in defaults in life insurers’ portfolios although during the same period CMBS loans suffered severely. The life companies’ cumulative default rate never exceeded 3% in any cohort from 1993 to 2011. The companies’ improved their underwriting and risk management practices after the commercial real estate troubles of the late 1980s and early 1990s and they have reaped the rewards since. This result suggest that underwriting can be more important than macroeconomic conditions in determining loan performance For example, lifetime default rates to date for commercial loans held by life insurers in the 2006 and 2007 vintages are 0.5% and 1.5%, respectively. That is down dramatically from 32% and 24% in 1986 and 1987, respectively. Recent conduit CMBS loan performance is more comparable to life insurer performance in the previous recession, with default rates of 17% and 22%, respectively, for 2006 and 20074. Commercial Mortgage Defaults: From 1972 to 2011


CRE Finance World, Summer 2013
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