The first three months of 2016 have proven just how quickly the commercial real estate lending environment can change. Going into 2016, forecasts called for more than $125 billion in CMBS issuances in 2016. Today, those forecasts have been revised significantly downward to $60 billion, as regulatory changes, tightening credit standards, and widening spreads have dampened the appetite for CMBS loans.
On the other hand, life insurance companies continue to have a healthy appetite for commercial real estate debt and have increased their mortgage and equity allocations by 10 to 20 percent over last year. Spreads on A-Note general account loans are 75 to 100 basis points lower than their CMBS counterparts, although we have seen this gap begin to narrow in the past few weeks. Essex Financial Group is seeing the increase in life company activity firsthand, as we are on track to exceed our 2015 life company loan volume by the first half of 2016. We expect life companies to become increasingly fastidious in the second half of 2016 given this trend.
Essex Financial Group is the largest privately-held commercial mortgage
banking firm in Colorado and serves as a loan correspondent for 25 life
insurance companies, including numerous exclusive relationships. In addition to
offering life insurance company financing, Essex also arranges capital with
CMBS lenders, debt and equity funds, national and regional banks, government
agencies, credit tenant lease financiers, and other private capital sources.
Essex services a 700-loan portfolio that totals over $3.5 billion of
secured capital, providing hands-on involvement through the life of each loan.