Insurance companies are seizing the opportunity to offer loans on commercial properties. This comes in the wake of more traditional lenders either scaling back their commercial interests or deciding to stop offering this type of financing completely, according to a study conducted by CBRE Group Inc. Insurers can provide loan funding for up to 69 per cent of a property’s value, compared with an average funding level of 66 per cent from more traditional sources.
According to the CBRE Group study, the interest rate offered by insurers on commercial property mortgages is 20-30 basis points lower than average. (Each basis point is 0.01 of a percentage point.) A lower interest rate on a larger loan makes the prospect of dealing with an insurer an attractive one for owners who are looking for the best deal for their financing.
Banks in Europe have been cutting back on their lending practices since the third quarter of 2007. They have incurred €525 billion (£426 billion) in losses since that point, and are looking for ways to strengthen their balance sheets to comply with bank capital rules as directed by the Basel Committee on Banking Supervision. Existing loans may be sold, and repossessed properties may be sold so that the bank can recoup the amount of the outstanding loan as quickly as possible.
A total of ten insurance companies accounted for 14 per cent of UK businesses writing new loans for commercial properties in 2011, and this figure may rise to 20 per cent over the next several years. The insurers which were especially active in the commercial property loan market included Aviva Plc, Canada Life Group, Metlife Inc., and Prudential Plc. In contrast, the Societe Generale (GLE) SA , and Eurohypo AG, Commerzbank AG made a decision to stop all new lending starting in the fall of 2011.