Life Companies See Commercial Mortgage Returns Decline

Life company commercial mortgage investments had a return of 7.48% for all of 2012, including 1.85% in the fourth quarter, according to the LifeComps Commercial Mortgage Loan Index. On an annual basis, this was a decline of 142 basis points.

The third quarter had the best ROI for the year, 2.31%, while for both 1Q12 and 2Q12, ROI was 1.56%.

Income was responsible for 1.39% of 4Q12 ROI, while price appreciation contributed the other 46 basis points. For the full year, income was 564 bps of ROI and price, 184 bps.

LifeComps said that for 4Q12 price performance benefitted from tighter mortgage spreads that outweighed the negative effect of higher Treasury yields.

For 2011, ROI was 9.90%; broken out by quarter, it was 2.34% for 4Q11; 2.70% in 3Q11; 2.79% for 2Q11 and 1.72% for 1Q11.

By property type, the best ROI for 4Q12 came from apartments at 217 bps, down from 230 bps one year prior. Industrial was next at 189 bps, down from 218 bps in 4Q11. Office property ROI was at 179 bps, down from 238 bps, while retail’s was 174 bps, down from 240 bps.

On an annual basis, apartments returned 7.94%, compared with 10.29% in 2011; followed by retail 7.48%, down from 10.16%; office, 7.18%, down from 9.16%; and industrial, 6.87%, down from 9.53%.

According to the Mortgage Bankers Association, life companies hold 14% of commercial and multifamily debt outstanding, approximately $325.6 billion in dollar volume. LifeComps data is based on the 5,000 active loans in its database with an aggregate principal balance of $93 billion.