What Life Insurance Companies Are Lending To New Construction?
If you’re not used to seeing news of life insurance companies lending into new construction projects, you’re not alone. The life business is shy around multifamily projects for reasons of institutional culture — life companies would rather not risk ending up as landlords to their own beneficiaries with all the potential PR disaster that might entail when it’ time to evict a tenant.
Office projects also tend to show down lender enthusiasm in that sector, with tenants again the reason, albeit in a different way. Unless the office leasing is done in full ahead of time, the project takes on a speculative flavor in the eyes of the guys and girls who play with actuarial tables for kicks.
Lenders generally are also looking at financing more retail and office development, “although one of the themes of 2013 is strong preleasing,” said Bill Cotter, the northeast division manager at Wells Fargo Commercial Real Estate. “There won’t be much spec construction; you won’t see any empty office buildings.”
Against the backdrop of a persistent credit crunch, life insurance companies are increasing their stakes in new construction.
Life insurance companies, having largely disappeared from the scene during the darkest days of the recession, are also starting to become more active, according to Tim Wright, senior managing director for Holliday Fenoglio Fowler LP. There were five large insurance companies — MetLife, Prudential, Nationwide, Lincoln National and Principal Financial Group — making construction loans before the bubble burst.
“When the market came back there was really one or two out there,” Wright says. “But slowly the market is starting to deepen. Right now there are three to four legitimate life insurance companies starting to consider permanent construction financing in new developments.”
Atlanta Leading The Way?
As usual, national trends are unevenly spread, with some markets showing distinct compositions that we haven’t seen since before the recession. In Atlanta, a set of major projects describes what happens when banks back off their central role of allocating capital and life insurance giants step up:
Among the life insurance-financed projects in metro Atlanta, Northwestern Mutual Life Insurance Co. is the equity partner and lender for a 23-story mixed-use tower with 330 luxury units at 12th & Midtown, the $1 billion mixed-use development at Peachtree and 12th streets involving Daniel Corp. andSelig Enterprises Inc.
In west Buckhead, MetLife bought the luxury apartment known as “The Rocca” and an adjacent site to develop a similar project. It spent a combined $23.1 million. MetLife is the capital partner on the redevelopment of The Rocca and the adjacent site, and Daniel Corp. will handle the development and management.
In central Buckhead, USAA Real Estate Co.and developer JLB Partners L.P. formed a joint venture on a 375-unit apartment building that has been under construction for months. The five-story building at Pharr and Peachtree roads will be known as Village at Buckhead and could be completed as early as this fall.
After a construction boom that created a glut of empty intown condo towers and office buildings, metro Atlanta has seen a historic slowdown in its development pipeline, and lenders remain selective about what projects they will touch.
The moral of the story: when credit gets tight, expect opportunity from unusual places.