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Experts say insurers will stick with residential.

Medium-sized life insurance companies are bucking the industry trend of divesting themselves of real estate holdings and are continuing to provide loans on quality commercial projects of up to $10 million, according to a national real estate finance expert.

Dennis Yeskey, a consulting principal in the New York office of Kenneth Leventhal & Company, said medium-sized life insurance companies -- those from the top 20 to about the top 50 in asset size -- are continuing to make real estate loans that could support property acquisitions valued at up to $25 million. He said they are limiting financing to products such as multifamily housing or industrial properties that are considered less risky than offices or hotels.

This interest may seem surprising, since many of these insurers are restructuring problem real estate portfolios -- though not of the magnitude of some of their larger competitors, said Yeskey, adding that, Investment continues because the available yields are difficult to find outside real estate. Nonetheless, Yeskey noted that insurance companies have revamped lending practices.

"New real estate loans and investments have been characterized by caution and a flight to quality," he said. "Insurers prefer to fund developers with whom they or another major insurer have existing relationships.

"Like other lenders who have been |burned' by poorly performing real estate investments, life insurance companies have taken steps to limit exposure to riskier projects," said Yeskey. Many insurers have opted to pull out of the market for new mortgage loans and only refinance existing ones.

Even though life insurance companies are making loans, warned Yeskey, developers seeking financing from insurance companies can expect to meet more rigorous standards to qualify for financing. Yeskey noted that insurers are demanding higher debt service coverage combined with lower loan-to-value ratios and borrowers are required to invest greater equity. Restructuring Real Estate Portfolios Insurers also have become more aggressive in developing and implementing strategies for restructuring their commercial real estate portfolios, said Yeskey, explaining, Insurers seeking to avoid the losses incurred by banks and thrifts are increasing loss reserves, taking write-offs, negotiating workouts with borrowers, or foreclosing and selling the property.

Insurers are being proactive, designing procedures to more effectively monitor their loan portfolios and detect early signs of problems, building up workout and property management staffs and making greater use of outside workout consultants," Yeskey added.

Many insurers also are trying to increase their capital to provide a bigger cushion against loan losses. To accomplish this, some are discussing possible mergers; others have secured outside investment, particularly by foreign investors. Insurers also are showing interest in raising capital through other investment vehicles such as private mortgage REITs and mortgage syndications.
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Title Annotation:life insurance industry holding on to real estate investments
Publication:Real Estate Weekly
Date:Apr 8, 1992
Words:438
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