Questions and Answers with Justin Brindger on Life Insurance Debt Heading into 2024

Question: Why is life insurance debt so appealing heading into 2024?

Answer: As we kick off 2024, life insurance companies will be a reliable source of capital, particularly for fixed-rate loans. Banks and debt funds have reduced their lending due to liquidity issues on their balance sheets and problems with floating-rate loans in their portfolios. Unlike banks, life insurance companies do not demand deposit accounts and do not have ongoing loan covenants.

Question: How does life insurance debt differ from other types of debt?

Answer: Life insurance debt is typically intermediate or longer term fixed rate financing. You typically lock the interest rate at the Loan Application stage, and most loans are non-recourse to the borrower. Life insurance companies are investing in commercial mortgage loans to match up with the specific future liabilities on life insurance policies that have been issued.

Question: What are the most financeable asset types?

Answer: Currently, the most financeable commercial real estate deals are multifamily apartments, warehouse/industrial projects, and grocery-anchored retail/neighborhood strip retail. With the amount of negative press regarding the decline in the office market, particularly in CBD locations, office financing has become extremely difficult to obtain unless it is at extremely conservative leverage or has a long-term credit tenant in the space with no options to get out.

Question: What are some advantages of using life insurance debt as a financing option?

Answer: Some advantages of using life insurance debt include low fixed interest rates, longer repayment terms of 5 years to 30 years, no ongoing loan covenants, and typically non-recourse, or limited recourse, guaranty structures.

Question: When is the right time to get properties financed in 2024?

Answer: Unfortunately, there is no one-size-fits-all answer to that question, as the ideal time to finance commercial real estate would depend on factors such as market conditions, property type, location, and financial goals. Given the current demand for life insurance company debt and how they allocate their allotted dollars over the year, Q1 and Q2 offer an advantage. We are seeing rates creep down right now, and folks sitting on the sideline are starting to pounce. This is setting up a scenario that will offer a real edge to those projects ready for financing in the first half of the calendar year. With the Fed continuing to hold rates steady and most economists predicting some rate cuts throughout 2024, it appears much more favorable to refinance in early 2024 than it was in almost all of 2023.

Question: How many Life Insurance Company lenders are there that provide loans?

Answer: Approximately 100 Life Insurance Company lenders are active in the market. At ColumbiaNational, we have a correspondent relationship with 26 lenders and work regularly with another 15 or 20.

Question: Do life insurance companies have a minimum and maximum for loan size?

Answer: We work with life insurance companies to provide loans ranging from one million to hundreds of millions. Each company has its own lending criteria and loan amounts that it feels comfortable with. Many will only provide loans from $2mm to $15mm, and others will not work on financing under $30mm.

Question: What is the term of life insurance company loans?

Answer: Life insurance company loans typically have longer terms than traditional bank loans. The term of a life insurance company loan can range from 3 to 30 years, depending on the type of loan and the borrower’s needs. This longer-term can be beneficial for borrowers who are looking for a more stable source of financing and who want to avoid the hassle of refinancing every few years. Additionally, life insurance company loans are typically fixed interest rates for the full loan term, which can give borrowers greater predictability and stability in their monthly payments regardless of how dramatically interest rates move.

Question: Do Life Insurance Company lenders provide construction loans?

Answer: Yes, certain Life Insurance Company lenders do provide construction loans. These loans are typically long-term construction and permanent loan combinations with fixed interest rates from construction through the entire term of the loan. The borrower may need to provide a personal guarantee and/or a completion guarantee during a project’s construction and lease-up phases.

Question: Do Life Insurance Company lenders do early take-out loans?

Answer: Yes, Life Insurance Company lenders do offer early take-out loans. These loans typically pay off construction or interim financing following new construction or significant renovation. The terms and structures of these loans vary among different lenders, so it’s important to research and compare your options before deciding. Often, you will need to structure a master lease or a small piece of recourse, as well as an interest reserve until the property hits stabilization and a satisfactory Debt Service Coverage Ratio.

Question: Why is it important to go through a correspondent to work with a Life Insurance Company lender?

Answer: Working with a correspondent can be beneficial when looking for a Life Insurance Company loan for several reasons. Correspondents have a strong relationship with their lender relationships and are typically responsible for providing loans to their capital sources. In addition, correspondents typically retain loan servicing functions for the life of the loan after closing, so the relationship with the borrower is continuous and consistent. With a correspondent, you can access a broader range of lending options than you would if you went directly to a single lender. Additionally, correspondents can help simplify the application, due diligence, and closing since there is familiarity with the processes and “hot-button” lender issues are known.