Banks and life insurance companies stepped up lending on commercial properties in the third quarter of this year, according to the most recent survey from the Mortgage Bankers Association (MBA), an industry trade group. And retail was among the more favored asset classes, with the MBA’s origination volume index for retail properties increasing 164 percent from the third quarter of 2010. The only asset type to experience a greater origination uptick was hospitality, with a 406 percent change from the third quarter of last year.
What’s more, loan originations for retail properties increased 37 percent between the second and third quarters of 2011. The average loan size on retail assets also went up to $20.9 million, from $15 million in the first quarter.
The MBA reports that its origination volume index for loans made by commercial banks jumped 433 percent year-over-year to 169. The index uses the average origination volume per quarter in 2001 as its 100 mark. The origination index for loans made by life insurance companies went up 61 percent during the most recent quarter, to 282.
In spite of concerns about both global and domestic economy that spooked CMBS lenders earlier this year, traditional lenders continue to have an appetite for retail properties, according to David Akeman, director of capital markets with Stan Johnson Co., a Tulsa, Okla.-based commercial real estate investment firm. The caveat is that the properties in question have to feature good credit anchor tenants, long-term leases and good locations.
“If you are missing one of those legs, it gets a little more difficult,” Akeman says. “If you are missing two, it’s much tougher. Most lenders are looking almost as much at the real estate as they do at credit these days.”
Life insurance companies tend to be particularly picky about location, staying within the top 50 markets in the country, Akeman notes. For example, for the 12 months ending in September, life insurance companies accounted for 26 percent of all originations for commercial properties in Washington, D.C. and for 14 percent of all originations in Manhattan, according to Real Capital Analytics (RCA), a New York City-based research firm.
During the same period, life insurers financed only 1 percent of commercial originations in Miami. In tertiary cities throughout the country they’ve accounted for no more than 10 percent of originations.
What’s more, life insurers are willing to lend on only a few retail property types, including grocery-anchored shopping centers, fortress malls with more than $400 in sales per sq. ft. and, in some cases, power centers, adds Gerard Sansosti, executive managing director in the Pittsburgh office of Holliday Fenoglio Fowler LP, a commercial real estate capital intermediary. They won’t open their purse strings for class-B malls or strip centers.
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