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Commercial Mortgage Returns Negative to Start 2018

 

BOSTON, June 1, 2018 – Returns on commercial mortgage loans held by life insurance companies fell 0.77 percent in first quarter 2018 – down from fourth quarter’s return of 0.52 percent and marking the first negative quarterly return for mortgages since fourth quarter 2016, according to the LifeComps Commercial Mortgage Loan Index.

 

First quarter income was 1.08 percent while price subtracted 1.85 percent.  Treasury yields continued to climb over the quarter resulting in the price decline.  The benchmark 10-year treasury yield rose 34 bps. Other valuation factors made a slight positive contribution to loan values. 

 

The annual total return dropped to 2.54 percent from 4.99 percent in fourth quarter. Income contributed 4.46 percent while price subtracted 1.92 percent.  Values were negatively impacted by rising treasury yields that outweighed the positive contribution from tighter mortgage spreads.

 

Of the four major property types, industrial loans fared best for the quarter with a return of -0.54 percent and office performed best over twelve months with a return of 2.73 percent. Retail loans performed worst for the quarter and year with returns of -0.89 percent and 1.98 percent, respectively.

 

 

Commercial Mortgage Loan – Total Return by Property Type
as of March 31, 2018

Property

Quarter

12 months

Apartments

-0.83%

2.65%

Office

-0.65%

2.73%

Retail

-0.89%

1.98%

Industrial

-0.54%

2.36%

All*

-0.77%

2.54%

*Includes hotel, mixed use, and other commercial


About LifeComps

The LifeComps Commercial Mortgage Loan Index is the only published benchmark for the private commercial mortgage market based on actual mortgage loan cash flow and performance data which has been collected quarterly from participating life insurance companies since 1996. Active loans in the LifeComps Index number approximately 7,700 with an aggregate principal balance of $137 billion. The weighted average duration is 5.4 years and average reported loan-to-value is 51 percent.

Participating life insurers include Allstate Life Insurance Company, CIGNA Investment Management, AXA Equitable, John Hancock, Northwestern Mutual, Principal Financial, Prudential Insurance Company of America, Sun Life, Symetra and TIAA.  For more information, visit www.lifecomps.com.