Despite the traditional perception of life insurance companies (life cos) as conservative capital sources seeking low-leverage loans of 65% LTV or less on high quality properties, the reality is that their lending programs vary significantly based on the lender. Some life cos have adopted a risk-averse approach and compete primarily on offering the lowest rates, while others embrace higher yields by taking on additional risk, all while retaining the benefits of rate-lock at the term sheet and execution certainty. Life cos seeking higher yields are willing to finance diverse property types and situations, such as near-term lease maturities of tenants, which may not be considered by lower-rate/lower-risk life cos. Notably, life co correspondent lenders pursuing higher yields have successfully conducted substantial business in 2023, stepping into a market vacated by regional and local bank competitors.
So, what are some features and advantages of financing with life cos?
Targeted Property Focus
Life cos are primarily focused on financing multifamily, industrial, self-storage and retail properties, while also considering mobile home parks and office and hotels, when appropriate.
Certainty of Execution
The life co model boasts a prime advantage in its thorough evaluation process before issuing a term sheet, instilling a high degree of confidence in borrowers, that they will transact on the stated terms.
No Ongoing DSCR or LTV Covenants
Life cos do not impose ongoing debt service coverage ratio (DSCR) or loan-to-value (LTV) covenants, unlike the requirements of banks, CMBS lenders, and most debt funds. Where lenders that enforce loan covenants might demand a loan paydown for a performing loan due to a drop in property net operating income (NOI) or value below the specified DSCR or LTV, life co executions eliminate this risk. Our clients value that with a life co execution, they are not at risk for a loan re-margining during the loan term caused by events such as tenant loss, market fluctuations, or other factors leading to a temporary drop in DSCR or LTV.
Non-recourse loans are a staple of life co loan programs, with underwriting focused on property operations. However, some life cos with a risk-on approach that seek higher yields will require recourse.
Life cos offer a valuable rate-lock at the term sheet for 90 days, mitigating interest rate risk during the loan closing process. Rate-lock at the term sheet removes the uncertainty created when rate-lock happens later upon loan approval or closing.
With the increased cost of funds for banks following the 5%+ increase in the Federal Funds rate since early 2022, life co interest rates are lower than banks in today’s environment. Life co lenders use Treasury indices to price their all-in interest rates, with current pricing spreads ranging from 1.50-2.50%. All-in interest rates are ranging from 5.50% - 6.50% depending on the type of loan request.
Flexible Loan Terms
Life co lenders offer a broad spectrum of loan terms, spanning from 3 to 30 years. In response to a growing trend among borrowers seeking shorter term loan requests, life cos actively provide financing options with terms ranging from 5 to 7 years. Some even extend their offerings to accommodate requests for terms as short as 3 years, to attract and win high-quality business.
Historically, life company lenders did not offer much prepayment flexibility, but that has changed over the last 10-years. Life co lenders do offer prepayment flexibility, catering to the expectations of many borrowers who foresee the opportunity to refinance at a lower rate in the coming years. This attractive feature aligns with the diverse objectives of borrowers.
Bridge and Construction-to-Permanent Lending Programs
Life cos offer structured bridge programs with a fixed rate, 3-year interest-only term and prepayment flexibility after 12-24 months. Construction-to-permanent programs lock in rates upfront for both construction and permanent terms, allowing for prepayment flexibility post-lockout/yield maintenance. Today, the maximum loan-to-cost (LTC) for construction financing is approximately 60% LTC. A full or partial repayment guaranty is required during the construction period but often burns off to a non-recourse loan at property stabilization.
Life cos are also offering Participation loans as a solution for projects that require additional equity. Terms include up to 90% LTC, a 3–5-year term, fixed-rate locked at term sheet in the 5.75-6.00% range, and 30-50% participation splits in both net cash flow and value appreciation recognized at the time of sale or refinance of the property.
Gantry’s Loan Servicing Relationship
Gantry’s relationship with our life co lenders benefits borrowers through a single point of contact with Gantry’s experienced loan servicing team. This stands in contrast to other capital sources, such as CMBS, where borrowers contend with less personal attention and potential inefficiencies in addressing servicing issues that may come up during the loan term.
In the landscape of commercial mortgage banking and brokering, Gantry takes pride in presenting a diverse capital network that includes life insurance companies, agencies (Fannie Mae, Freddie Mac, and HUD), banks, credit unions, CMBS, debt funds, pension funds, and private lenders. One of our unique and competitive advantages in the marketplace lies with our extensive network of correspondent life insurance company relationships, a rapport built over the past three decades. Despite the recent pullback by the banking sector in commercial real estate lending, life insurance companies have sustained a high level of activity.
Life insurance companies are a dependable capital source, primarily offering fixed-rate, non-recourse debt with the ability to rate-lock at term sheet and certainty of execution. Gantry, serving as a mortgage banking correspondent for over 30 life co lenders, maintains predominantly exclusive to semi-exclusive correspondent relationships with them. In these arrangements, Gantry sources loans aligning with life cos lending parameters and assumes the role as the loan servicer after the loan is closed. As the designated loan servicer, Gantry streamlines the process for borrowers by serving as a single point of contact. This ensures efficient handling of all post-loan-closing issues through our experienced loan servicing team. Gantry’s loan servicing portfolio currently stands at over $18 billion comprising over 2,100 loans spread across 43 states. Remarkably, our portfolio boasts zero delinquencies, attesting to our commitment in loan servicing.
The significant value of Gantry’s life co correspondent relationships lies in the exclusive access we afford to our clients to life co debt, a unique advantage not available to competitors lacking correspondent ties. While certain life companies operate as "open" lenders, accepting loan opportunities from various sources, these "open" lenders are scarce. As a result, brokers without correspondent relationships only have access to a limited portion of the life company marketplace.
As we anticipate the dominance of life insurance company lenders in 2024, given the decreased competitiveness of many banks, Gantry stands as a strategic partner. Collaborating with Gantry not only provides access to the market expertise of seasoned professionals but also opens doors to enduring relationships cultivated with lenders over numerous cycles. While last year posed challenges for commercial real estate owners and lenders, 2024 is positioned for discovery and recovery.