The Insurance Company Loan

Insurance companies are asset allocation lenders, and they make commercial and multi-family real estate loans that they hold on their books as long-term investments. They play a significant role in the lending market, as they manage the amount of money they invest in real estate loans as a percentage of their overall investment portfolio.

Throughout the unpredictability of the COVID-19 environment, insurance companies have continued to be a low-price lender while providing certainty of execution for borrowers. One misconception about insurance company lenders is that they are only willing to lend on class A and B properties in core markets. While many insurance companies do adhere to these lending parameters, a number of insurance companies lend on “hairier” property types in secondary and tertiary markets and are often able to provide very competitive loan terms. Another misconception is that insurance companies only make large loans. Many insurance companies specialize in the small and mid-market lending space and make loans as small as $1,000,000. Overall, insurance companies remain consistent in the market, and their underwriting and loan structuring abilities have helped them stay in high demand. 

Some considerations for using an insurance company lender for your next real estate finance endeavor are shown below.

Pros:

• Can provide a fixed interest rate on up to 30 years.
• Have the ability to lock in the interest rate at application. Will sometimes offer a forward rate lock, up to a year in advance.
• Provide a wide variety of loan sizes, including large loans. Minimum loan amount is $1,000,000.
• Will lend on all property types.
• Are often able to provide the most competitive terms on sub 60% LTV requests.
• Will offer recourse or non-recourse, depending on size.
• Have the flexibility to structure transactions throughout the life of the loan.
• Have long-time employees who value relationships with mortgage bankers and borrowers.

Cons:

• Max leverage is typically 60% LTV.
• Most loans have a yield maintenance prepayment penalty, which creates less flexibility for the borrower who wants to pay off the loan before maturity. Some insurance companies provide a step-down prepayment penalty structure.
• The financing process typically takes ~60–75 days from the date the application is signed.

Sarah Bernhisel
Vice President
D: 415.872.0905
sarah.bernhisel@slatt.com
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