Trepp Life Insurance Commercial Mortgage Return Index Drops on COVID-19 Related Credit Concerns in First Quarter

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Commercial mortgage investments held by life insurance companies posted a -1.00% total return in the first quarter of 2020 which is down significantly from the reading of 0.55% in the fourth quarter of 2019.

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Despite the significant drop in treasury yields, credit concerns materially pushed down the value of the loan portfolios.

Trepp, a leading provider of information analytics and technology to the structured finance, commercial real estate, and banking markets has released the first quarter 2020 returns for its life insurance commercial mortgage index showing another steep decrease from previous quarters.

Instantly download the report here: https://www.trepp.com/instantly-access-q1-2020-returns-report-life-insurance-commercial-mortgage-index-0.

Commercial mortgage investments held by life insurance companies posted a -1.00% total return in the first quarter of 2020 which is down significantly from the reading of 0.55% in the fourth quarter of 2019. Declining interest rates were unable to offset growing credit concerns.

The reading was 2.2% in the third quarter of 2019, and 3.11% in the second quarter, according to the Trepp LifeComps™ Commercial Mortgage Index, which benchmarks commercial mortgage investments held by life insurance companies.

Of the four major property types, multifamily properties performed best over 12 months with a total return of 5.1%, followed by office at 4.9%, and both retail and industrial at 4.57%.

Income contributed 1.03% and price subtracted 2.04% in the first quarter of 2020, with the negative price appreciation primarily being driven by credit risk.

“Despite the significant drop in treasury yields, credit concerns materially pushed down the value of the loan portfolios,” said Russell Hughes, head of data consortia initiatives at Trepp.

“While credit performance remains strong with no loans in the LifeComps Index being delinquent as of March 31, 2020, expectations about future credit performance is reflected in the specific reserve levels for these portfolios, which is up over 300% from the end of Q4 2019. While these loans are among the highest in credit quality across the CRE industry, they are not immune to the disruptions that the economy is currently experiencing.”

On a rolling four-quarter basis, income contributed 4.40% while price added 0.49% for a total return of 4.90%. Declining Treasury yields had been driving price gains before the coronavirus-related economic shock; the yield on the 10-year Treasury ended the first quarter at a record low of 70 basis points.

There are approximately 7,600 active loans in the LifeComps Index with an aggregate principal balance of $148 billion. The weighted average duration is 5.4 years and the average reported loan-to-value is 51%.

For more information, download the full report here: https://www.trepp.com/instantly-access-q1-2020-returns-report-life-insurance-commercial-mortgage-index-0.

Please contact Trepp at press@trepp.com or 212.754.1010 with any questions. Visit http://www.Trepp.com for more information on LifeComps.

About LifeComps™
The LifeComps™ Commercial Mortgage Loan Index is the only published benchmark for the private commercial mortgage market based on actual mortgage loan cash flow and performance data which has been collected quarterly from participating life insurance companies since 1966. LifeComps provides a quantifiable investment performance index and serves as a benchmark for privately held commercial real estate mortgages.

Trepp
Trepp, founded in 1979, is the leading provider of information, analytics, and technology to the structured finance, commercial real estate, and banking markets. Trepp provides primary and secondary market participants with the web-based tools and insight they need to increase their operational efficiencies, information transparency, and investment performance. From its offices in New York, San Francisco, and London, Trepp serves its clients with products and services to support trading, research, risk management, surveillance, and portfolio management. Trepp is wholly-owned by Daily Mail and General Trust (DMGT). For more information, visit https://www.Trepp.com.

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Russell Hughes
Trepp
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