Life Insurance Companies Expand Multifamily Debt Offerings

The stability of apartment assets prompts these institutional investors to develop new strategies as they travel cautiously up the yield curve.

Image by Peshkova/

Last year marked the largest increase ever in outstanding multifamily debt, a trend fueled in no small part by life insurance companies. Against the backdrop of a persistent low-rate rate environment, many of these risk-adverse institutional investors are now deploying third-party money to get a bigger piece of the multifamily finance pie. 


Jamie Woodwell

Jamie Woodwell

In 2018, life insurance companies’ mortgage debt holdings increased 9 percent, slightly more than the market as a whole, according to Mortgage Bankers Association chief economist Jamie Woodwell. In addition to holding whole loans, Woodwell notes, life companies also can invest in CMBS, collateralized debt obligations, debt funds, or mortgage REITs, which also posted a record increase in multifamily mortgage debt last year (6.1 percent).

Multifamily mortgage debt outstanding grew 8 percent in 2018, or $102 billion, and ended the year at close to $1.4 trillion. Fannie Mae, Freddie Mac and FHA together accounted for the lion’s share ($675 billion), followed by commercial banks ($430 billion), state and local governments ($90 billion), life insurance companies ($80 billion), and CMBS, CDO and other asset-backed securities issues ($43 billion).

Shore Hill Housing, Brooklyn, N.Y. Image courtesy of MetLife

Shore Hill Housing, Brooklyn, N.Y. Image courtesy of PGIM

While vacancies have increased slightly, property values increased by 9 percent last year, Woodwell points out. “The U.S. added 1.6 million new households” in 2018, he said. “And, if you look at new construction activity across single-family and multifamily, we’re not building nearly that many new units.”

Expanded Offerings

Indeed, life companies have been quietly expanding their product offerings, observed Tom Fish, executive managing director & co-head of JLL’s capital markets-finance practice. Life companies have assembled experienced teams that were previously limited to putting out money for their general account. As more capital flows into the multifamily sector, life companies’ real estate teams are increasingly diversifying their financing offerings by using third-party money in the form of debt funds.

Tom Fish

“Capital is increasingly concerned about being late-stage in the cycle, and thus wanted to move further down the capital stack from equity to debt,” Fish said. “As a result, there is increasing demand for higher-leverage debt products than pure equity offerings. That doesn’t mean they are necessarily going to be more aggressive in their underwriting; it just means they are going to offer a higher- leverage bucket of money that is priced correspondingly.”

MetLife Investment Management completed $15.1 billion in new debt and equity transactions in 2018, bringing its portfolio of commercial real estate assets under management to $91.2 billion, including both debt and equity. Significant 2018 loan executions include a $156 million first mortgage on Modera Avenir Place, an apartment and retail property located in Vienna, Va.   

“Our platform volume-wise is super active relative to our peers,” contends Gary Otten, head of MetLife Investment Management’s real estate debt strategies group. “That’s because we’ve grown our external capital raising and asset management capabilities so we’re not only investing for MetLife itself and its insurance portfolios, we’re investing for other, third-party clients alongside us and through structured vehicles.” 

Sources: MBA, Federal Reserve Board of Governors, Wells Fargo Securities, LLC, Intex Solutions, Inc. and FDIC

Sources: MBA, Federal Reserve Board of Governors, Wells Fargo Securities, LLC, Intex Solutions, Inc. and FDIC

According to Otten, MetLife differentiates itself from conventional life-company multifamily lending practices by offering an unusually wide range of terms, from two-year to seven-year floating rate loans all the way up to 25-year fixed-rate loans and everything in between. That varied capability, he said, enables MetLife to “follow a lot of good real estate owners and developers through a lot of their different business plans and platforms, locations and product types.” 

Selective Strategy

Gary Otten, MetLife Investment Management

Gary Otten, MetLife Investment Management

Although multifamily loans have a lower default rate than other property types and the sector tends to be less volatile overall, MetLife takes a more selective approach to multifamily deals than some other lenders. “We may do less because everybody chases it,” Otten said. “Relative value doesn’t always hold up so nicely because multifamily loans are often priced so aggressively.”

Like MetLife, PGIM Real Estate Finance, with $96.2 billion of assets under management, achieved record multifamily loan production in 2018: nearly $8.9 billion, about 49 percent of its 2018 real estate loan total, reported Christine Haskins, managing director.  

A signature feature of PGIM Real Estate Finance’s lending practice is its agency complement—it closes loans for market-rate and affordable multifamily assets on behalf of Fannie Mae, Freddie Mac and the Federal Housing Administration—and core-plus money. Those elements enable PGIM to lend on a wide spectrum of assets, from a suburban New Jersey community to stabilized, high-end product in San Francisco.

Christine Haskins

For instance, in December PGIM announced a $102 million Freddie Mac loan to Jonathan Rose Cos. for Shore Hill Housing, a 558-unit affordable senior housing community in Brooklyn’s Bay Ridge neighborhood. The 10-year, fixed-rate financing will cover acquisition and green efficiency upgrades for the 41-year-old property.

Competition Heats Up

While PGIM would like to maintain 25 percent of its production in the multifamily arena for its core mortgage portfolio, Haskins points out that fewer maturing loans are coming due in 2019 than in recent years. As a result, all life companies will be competing for the same product. 

All things being equal, Haskins says, some of the best opportunities for life companies may be found in their strong relationships. PGIM also plans to keep growing production outside of the U.S., which comprised 5 percent of its volume last year in markets like London, Dublin and the Netherlands.

Nikita Rao

Nikita Rao

Nuveen managing director Nikita Rao, who is responsible for the investment manager’s U.S. multifamily strategy, says extensive internal research indicates that stable long-term cash flow will be found in investments that target the middle-income household renter (average rent $1,791 per month), rather than the luxury market. The new fund is seeded with nine assets valued at $850 million completed between 2001 and 2015 and located in Seattle, Portland, Phoenix, Dallas, Houston, Atlanta, Raleigh, and Washington, D.C.—markets that form the swath of the U.S. that’s sometimes referred to as the smile.

Rao also points out while most investors lump Millennials into one demographic cohort, Nuveen has bifurcated them into the 18-to-29 group and the 30-and-up segment. “Younger Millennials are actually behaving differently than older Millennials,” Rao said. “They want to live in cities with a lower cost of living, yet (offer) high-quality jobs. Therefore, you’re seeing this migration pattern into some of the secondary markets.” As a result, corporations are also thinking about locating to those markets, a line of reasoning that investors should also embrace, she says.

Read the May 2019 issue of MHN.

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