Insurance companies, which hold nearly half of the total commercial real estate
mortgage exposure with $150 billion in combined commercial mortgage assets, saw realized losses from their commercial mortgage holdings retreat to a level of just six basis points, with no companies reporting realized losses greater than of 1%, according to a survey by CRE Finance Council (CREFC) and Trepp LLC on commercial mortgage investment performance.
The survey of participating companies covered commercial mortgage data for Jan. 1 to Dec. 31, 2011, including any sub-performing or non-performing loans in subsidiary entities.
According to CREFC, the results indicate that U.S. insurance companies continue to achieve superior investment performance through thier allocations to commercial mortgages.
Other key data points from the survey (all as of year-end 2011) include the following.
• Realized losses were contained primarily in first mortgage investments at 83.24% of all company losses reported. Minor losses were reported from investment in higher yielding subordinated debt instruments (14.10% of all losses) and construction loans (2.66% of all losses) where much lower levels of exposure are held.
• Loss Severities Experienced: The severity of realized losses for insurance companies (when a loss was recorded in 2011) averaged only 9.19% of the par balance for first mortgage investments. The underlying quality of the real estate in insurance company portfolios helped to mitigate the financial impact of troubled loans.
• Losses by Property Type: The office property type accounted for 31.61% of all realized losses from participating companies followed by multi-family at 23.43%, retail at 11.04%, industrial at 21.93% and hotels at 2.34%.
• Loss Severities by Property Type: There was an extremely tight range of average realized loss severities for the four core property types when a loss was recorded. Severities ranged from a high of 12.87% for multifamily to a low of 8.54% for office. Retail loss severities were recorded at 9.71% and industrial at 12.57%.
• Actions Taken On Problem Loans: For the realized losses that were recorded, 17.16% were generated from distressed note sales, 15.61% from foreclosures, 21.18% from discounted payoffs and 31.74% from either write-down(s) or restructures.
• Delinquencies: Total loan delinquencies (30 days or greater) recorded by participating companies within their general account holdings and subsidiary entities averaged 0.43%.
"These results provide clear evidence of extremely solid investment performance within insurance company portfolios," according to Todd Everett, managing director and head of real estate fixed income at Principal Real Estate Investors and chair of CREFC's Portfolio Lenders Insurance Company Sub-Forum. "They also demonstrate the reasons we are seeing increasing allocations in commercial mortgages from this sector. The lowering level of losses and minor levels of high risk seem to indicate that insurance companies are benefitting from the recovery in real estate fundamentals."
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