Insurance companies are offering the best terms on senior commercial real estate loans as banks halt or scale back lending, a study by real-estate adviser CBRE Group Inc. (CBG) showed.
Insurers are prepared to provide loans for as much as 69 percent of a property’s value, compared with an overall average of 66 percent. The interest rate charged by insurers is 20 to 30 basis points lower than the average, CBRE said. A basis point is 0.01 of a percentage point.
“Most of their loans are larger in size than the market average, issued against best-quality real estate in terms of location and covenant strength,” Natale Giostra, CBRE’s European head of debt advising, said in a statement.
Insurers may represent 20 percent of U.K. businesses generating new loans for commercial real estate in the coming years, he said. Ten companies, including Aviva Plc (AV/), Axa SA (CS), Canada Life Group, MetLife Inc. (MET) and Prudential Plc (PRU), accounted for 14 percent this year, CBRE calculated.
Europe’s real estate lending market is dominated by banks, which have also conducted just one significant sale of securitized mortgage-backed bonds since 2007. Proposed changes to European insurance investment rules, known as Solvency II, will make real estate lending more attractive compared with buying properties.
Europe’s banks cut back on lending after incurring 525 billion euros ($701 billion) of losses since the third quarter of 2007, following the financial crisis and ensuing property slump, according to Bloomberg calculations.
An overhaul of bank capital rules by the Basel Committee on Banking Supervision, known as Basel III, requires traditional lenders to strengthen their balance sheets. That will prompt them to sell loans and foreclosed properties.
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