CMBS Lenders vs. Life Companies: What You Need to Know

How CMBS Lenders and Life Companies Compare

CMBS lenders and life companies often compete in the same space for large real estate deals. Both have significant advantages and certain disadvantages. For instance, life company loans typically offer lower rates and significantly better loan servicing, while CMBS loans are much easier to get approved for and offer benefits including interest-only periods (and even full, interest-only loans).

The Benefits and Drawbacks of CMBS Loans

CMBS loans are some of the easiest multifamily loans to apply for, especially if a borrower is looking for a large loan at a relatively affordable interest rate. Most loans are asset based, which means that a borrower may not necessarily need to have strong financials in order get approved, as long as the property can generate sufficient income (a minimum DSCR of 1.20x is typically required). In addition, CMBS lenders typically offer leverage up to 75% LTV, which is relatively generous, considering that they often offer loans to properties in secondary or tertiary markets.

However, for borrowers, CMBS loans typically do not offer a great servicing experience; since these loans are securitized and sold on the secondary market, borrowers generally cannot expect any assistance if they have trouble making their mortgage payments. In addition, servicing is often outsourced to a different firm (not the original lender), who may not have the borrower’s priorities in mind. Finally, CMBS loan rates may be volatile, and, while the vast majority of CMBS loans are fixed-rate, rates can vary significantly before closing.

The Benefits and Drawbacks of Life Company Loans

In general, life company loans can offer significantly lower rates than CMBS, and, unlike CMBS loans, offer an ideal servicing experience for borrowers. Since life companies keep these loans on their books, a borrower can interface directly with their lender to discuss any issues or concerns. Also, unlike CMBS loans, life company loan rates are often fixed during the application process, so a borrower will not have to worry about rates swinging wildly upward before their closing. Life company loans offer far longer terms than CMBS— with many life companies offering up to 25-year, fully amortizing loans.

Despite their benefits, life company loans aren’t right for every borrower. For one, life company loans have notoriously stringent lending standards; most properties must consist of Class A commercial real estate in a major MSA— and, unlike conduit lenders, life companies will typically look deep into borrower financials. In addition, life companies don’t offer nearly as much leverage as CMBS lenders, with leverage maxing out at 70%, and many companies only offering 50-55% leverage.

Who are the Top CMBS Lenders?

As of Q1 2018, the top CMBS lenders in the U.S. included:

  • JP Morgan Securities: $3.4 billion in loan volume, 17.7% of market share

  • Deutsche Bank: $2.7 billion in loan volume, 14.1% of market share

  • Goldman Sachs: $3.8 billion, 9.6% market share

  • Wells Fargo Bank: $3.1 billion, 7.6% market share

Who are the Top Life Company Lenders?

In comparison to CMBS lenders, it’s significantly more difficult to find information about life company lenders, as they are much less likely to publish lending statistics than CMBS lenders, who eventually sell CMBS on the open market. However, in 2015, life insurance companies issued $59.1 billion in commercial and multifamily real estate loans. Currently, some of the biggest lenders in the space are Northwestern Mutual, Pacific Life, New York Life, Manhattan Life, MetLife, Prudential, Mass Mutual, and TIAA-CREF.