An often-used form of financing for the office market – life insurance companies – has also tightened its purse strings, even as more loans come due.
NEW YORK – A traditionally reliable source of capital for commercial property developers, life insurance companies are turning their backs on office building owners as tens of billions of dollars in office loans come due this year.
Many of the insurers slowed or stopped making office loans executives and analysts report, interrupting the sector’s decadelong expansion into commercial property lending.
Insurance firms are increasingly concerned about rising vacancy rates and falling rents, a result of the growing popularity of remote work and return-to-office rates that still hover around half of what they were before the pandemic.
A recent Goldman Sachs Asset Management survey found that 15% of insurers with commercial real estate lending businesses plan to shrink their activity this year – more than three times as many in the same survey last year.
The insurance lenders’ retreat comes as other lending sources for building owners have all but dried up. Banks, the largest commercial property lenders, have been pulling back since last summer.
The lack of readily available financing is especially worrisome this year, with so much commercial property debt coming due. A record $270 billion in commercial mortgages held by banks is set to expire this year, data firm Trepp Inc. reports – and approximately $80 billion of that is backed by office buildings.
Source: Wall Street Journal (04/18/23) Scism, Leslie; Grant, Peter
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