JEFF CHARNESKI: Struggling borrowers
For years, securitized lenders were the popular kids in school – the flashy, high-flying Wall Street crew that used aggressive loan terms to draw in commercial borrowers.
Now the credit crunch has sent securitized lenders to the bench, and more commercial borrowers are flocking to life insurance companies, putting such corporations in the kind of first-string position they haven’t enjoyed in years. With a shorter list of available lenders, more commercial borrowers are renewing their interest in life insurance companies, said Tim Kenny, managing director with MassMutual Financial Group’s Babson Capital Management, and that means life insurance lenders can afford to be choosier about with whom they do business.
But life insurance companies say they haven’t let the attention go to their heads: Loan managers like Kenny say they aren’t dumping more cash into loans – they’re keeping the amount of loans roughly constant, despite the broader pool of borrowers vying for their loans.
Life insurers’ current popularity is something of a return to former days, before the mid-1990s brought the rise of securitized lenders who offered low rates and aggressive terms, eventually drawing off a lot of insurance companies’ former borrowers.
Kieran Quinn, chairman of the Washington, D.C.-based Mortgage Bankers Association, said securitized lenders had bitten off increasingly big chunks of the lending activity in the past three years: They accounted for $100 billion worth of loans in 2005, then $170 billion the next year. In 2007, they accounted for $240 billion before this year’s credit crunch sidelined most of their lending activity.
During the same years, life insurance companies kept their investments in the $40 billion to $50 billion range, Quinn said, and this year is not likely to see any increase. Instead, they’ll just be pickier about who they lend to, and under what terms.
George Fantini, chairman of Boston-based brokerage firm Fantini & Gorga, said unlike lenders that packaged and sold off loans, life insurance companies kept rates conservative and kept loans in their portfolios. That strategy left borrowers with some key advantages, such as being able to deal with their lenders more easily should complications arise with their loans.
Still, securitized lenders’ low rates often were too good to ignore, Fantini added, and borrowers took more and more business to Wall Street as time went on. Life insurance companies kept up steady lending, but competition to nab those loans was stiff.
‘Back to Basics’
David Brown, head of global private debt and equity markets for TIAA-CREF, said the tide started to turn last summer. Life insurance companies are now in the driver’s seat, and at TIAA-CREF, lenders can focus on bolstering desired parts of their portfolios. In Brown’s case, that means targeting national developers that deal in regional malls, retail opportunities, high-quality office space and – selectively – hotels.
Most companies are offering what he called “moderate leverage,” in the 60-65 percent loan value, using a traditional underwriting structure.
“It’s kind of ‘back to basics,'” he said. “And that’s a good thing.”
As for borrowers and brokers, the environment isn’t as friendly.
Jeff Charneski, partner with Boston-based Goedecke & Co., said life insurance companies are only spending a finite amount of money, and those loans are only going to a select few of the best borrowers. That leaves many borrowers struggling to find a lender, and many mortgage brokers are at a disadvantage after years of working with securitized lenders.
“[Some mortgage brokers] are calling life insurance companies they haven’t called in five, 10 years,” Charneski said. “Insurance companies were the less-desirable option to many people for many years.”
Always conservative with their loans, the current environment has allowed life insurance companies to be even more so, said Mike Riccio, senior director in the Hartford office of CBRE Melody, CBRE’s mortgage banking arm. In a business that relies heavily on personal relationships, Riccio said, brokers who didn’t have much prior contact with life insurance companies are having difficulty getting life insurance lenders to return their calls.
Lenders’ conservatism has broader impacts: They’re willing to lend only to developers investing in markets that are a surer bet, Riccio said. That means developers from Boston and other “first-tier” cities are having an easier time than places like Nashville, Tenn., Minneapolis and Hartford.
Riccio said the tougher lending competition actually has been helpful to CBRE Melody. Many borrowers who could tap into the large pool of lenders didn’t see the need brokerage services, he said, and that’s not the case anymore.
“We’ve been hired by people who never talked to us before,” he said.
