LifeCo Innovations Open Doors for Borrowers

In the pursuit of yield, new loan programs for traditional and viable alternative assets are emerging.

By Jeff Matlock

It’s no secret. There is an enormous quantity of lender capital in the market today. For insurance lenders, most have committed to increasing, and for many dramatically increasing, their allocations to real estate lending in 2026. But in today’s marketplace they are facing increased competition for their preferred allocations to permanent debt on stable multifamily, industrial and necessity retail. In this market climate, the push to identify viable alternatives that support their pursuit of yield has become a real imperative. This is good for borrowers and will create new options to consider from these well capitalized lenders.

Insurance lenders have long been a definitive and preferred source for permanent debt. Their consistency, straightforward underwriting process, non-recourse terms, rate lock at application and attentive servicing reputation long provided a competitive edge. But a steepening yield curve has eaten into the marketplace for their traditional 10-year and 7-year programs as the market has moved to a shorter-term mindset. Five-year loans will not fully support achieving their targeted returns. So, insurance lenders are positioning to adapt. This has opened the door to some creative programs worth exploring.

Debt Structure Alternatives

Pre-stabilization/bridge to permanent loans: These loans are particularly appealing to projects still in lease up looking to retire maturing construction debt. They blend the desired elements of bridge immediacy with permanent stability. Where they are comfortable with the asset story, sponsorship experience and fundamentals, insurance lenders see these hybrid loans as a viable opportunity to deploy capital that meets a higher yield target. Loans will often include early term interest only and underwrite to anticipated stable DSCR, providing the breathing space to move through final lease up to stable performance.

Participation equity: Where fresh equity is necessary to refinance with permanent debt to meet necessary DSCR in the new rate climate on otherwise performing assets, insurance lenders can offer permanent structures pairing a participating equity position to a traditional fixed rate loan. Like a pre-stabilization loan, these participation allocations will require sponsorship qualification and asset metrics that project a successful outcome moving forward. These loans will be particularly attractive to stabilized properties refinancing out of five-year loans placed in 2021 at the lower rates prior to volatility shaking up the market.

Bridge: While long known for their permanent debt programs, insurance lenders have seen an opportunity to move a greater portion of their lending allocation into shorter term bridge loans to achieve higher yields on shorter term loans as the market adjusts and viability for permanent debt returns. These loans feature fixed rates for consistency and will often include extensions to ensure a smooth exit.

Construction to permanent: These loans are becoming appealing again and pricing in an improving rate climate, helping projects deliver into lease up with a fixed rate in place without the fear of a maturity before stabilization. We expect to see insurance lenders to compete with these programs on new construction funding to multifamily and industrial projects.

Alternative Asset Types

Insurance lenders are also looking to a variety of alternative asset subsets as competition heats up in the multifamily, industrial, and necessity retail marketspace. Their historic success and working knowledge of these specialized property types allows them to confidently underwrite assets, stable or still in transition. These asset types include:

Self storage: This is an asset class well suited to insurance lender pre-stabilization/bridge to permanent loans. Decades of underwriting and servicing experience with these assets has built confidence in projecting performance through to stabilization. Where assets are still in transition but meeting anticipated milestones, insurance lenders will offer permanent debt with attractive rates and terms. For fully stabilized projects, they are also highly competitive.

Manufactured housing: Another alternative asset class where insurance lenders remain comfortable deploying fixed rate permanent debt is this housing subset. Where agency loans can require operating covenants that can be restrictive to performance, insurance lenders underwrite without operational interference and offer a streamlined process attractive for its simplicity. They see the demand drivers and stable long-term fundamentals driving this affordable housing option and remain committed to simple, efficient, turnkey underwriting on properties meeting their DSCR requirements.

Senior housing: There is a strong market for properties serving a growing and still active senior population, supporting fundamentals for properties serving an independent, 55-plus consumer requiring limited services and care management. Strong demographics and favorable risk adjusted returns have strengthened the case for funding these projects.

Office: Where a new basis has been achieved and occupancy and metrics can meet necessary DSCR, insurance lenders are back in the business of underwriting office. They are particularly attracted to medical office properties and suburban multi-tenant assets where location drives demand fundamentals and occupancy can survive projected stress tests.

The competition to effectively deploy capital for insurance company lenders is real. Agencies are competitive on multifamily with proceeds, spread, and rate but rigid on underwriting and service. Banks are returning to active originations again after a post volatility hiatus and can often offer flexible terms with prepayment flexibility, although they remain recourse driven and are often a little higher on spread. CMBS can offer maximum proceeds with non-recourse terms but require a rigid underwriting process and have relatively inflexible servicing covenants. However, none of these sources can match insurance lenders for their attentive servicing, flexibility, certainty of close, and non-recourse programs when their underwriting criteria are met.