Forward Rate Locks and the Life Company Advantage

Peter Welsh

Fourth quarter historically been a quieter time for lenders that typically have met or are close to meeting their allocation targets. But a red-hot investment market and low interest rate climate primed for refinancing, however, has continued to push new originations for qualifying transactions.

Gantry is very familiar with life insurance loan programs and advantages. We also originate a sizable quantity of Agency and CMBS debt and see all three continuing to actively compete for business in multifamily space as we close out the year. Our advisory role in commercial mortgage finance, however, compels us to recognize a competitive life company attribute must be highlighted for the current market mindset: forward rate lock.

We do not steer clients away from CMBS and Agency debt programs where it makes sense for their investment goals. CMBS will allow for higher leverage and will look at assets that life companies won’t in the “B” and “C” categories. Agencies can often be appealing as well, but sometimes their underwriting can be tough for newer projects pursuing stabilization. For a legacy hold investor looking for a long-term loan, however, the forward rate lock can be a big differentiator as we look to 2022 and beyond.

While rates have climbed nominally this year, and they are currently holding, one should expect that we will see some upward movement in 2022. It is hard to predict where rates will land exactly in 2022, as traditional indicators such as inflation, overall economic health, and action or inaction by the Federal Reserve have created uncertainty. This uncertainty has created some concern for borrowers in the current cycle as to where those rates will land in the year to come. In this environment, life company willingness to rate lock can be extremely appealing to borrowers looking to seize the current rate environment.

Flexibility When You Need It

Multifamily and most industrial properties are the preferred property types in the current market cycle. For multifamily, life company programs can be priced as competitively, or even more competitively, than agency programs during various times of the year. Right now, rate lock on application becomes a decidedly appealing consideration for those looking to finance institutional quality assets. Some lenders will even go forward over six months with a slight premium in spread. Also, life company lenders can underwrite and commit prior to stabilization to meet the needs of borrowers in advance of full lease up.

Agencies can commit prior to stabilization, but life companies offer more flexibility based on sponsorship, asset location, and property quality presenting fewer hurdles, presumably. Life companies look at various factors defining current income as a project moves towards stabilization. For a qualified sponsor, modeling annualized performance from current income is often enough for life company underwriting.