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Are Life Companies Changing in Frothier Times?
March 4, 2015
Ackman Ziff Capital Markets Blog (on Bisnow.com)
With interest rates at all-time lows and investment sales volume hotter than ever, life companies need to compete with other sources of debt capital.
Life companies have long been preferred as superior sources of debt to conduits, given that they offer longer-term capital, lower interest rates (at times), and no dealing with a middle person (like CMBS servicers). The eternal problem: life companies have generally been darn slow to close. That’s changing, says Ackman-Ziff MD Marc Warren. Here’s how he thinks life companies are adapting a Wall Street work ethic in order to become more competitive.
Quicker closes. Life companies’ old window of half a month (or sometimes a lot more) for due diligence is quickly closing. Many are speeding up and streamlining their review processes to compete with banks and deliver faster closings.
Longer loans. Twelve-year loans (or longer) are an advantage life companies’ grant to borrowers for the benefit of their pensioners. CMBS generally “cuts off” at 10-year loan terms.
Competitive pricing. Just from working with a life company, you can pick up an additional 15 to 20 basis points—oftentimes, a lot more. Life companies’ interest compounding is longer (providing lower payments) and they generally price over US treasuries vs. swaps by Wall Street lenders.
Be warned though: Life companies are still very particular about borrower reputation, experience and property quality. They’re also very conservative on underwriting, especially loan/value.
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