Capital Corner: Life Company guidance from Sentinel and Securian; updates from Freddie, Fannie, and HUD

Insurance companies remain a steady part of the financial engine for commercial real estate; for NorthMarq, they represent almost 40 percent of the financing we arrange for clients. However, each firm has a different appetite for risk, with different goals driving their lending decisions, which is why we’re profiling Sentinel Investments/National Life Group and Securian Asset Management in this month’s edition of Capital Corner. 

Sentinel Investments provides fixed and floating rate first mortgage loans to experienced borrowers (repeat clientele) in the top ~50 real estate markets throughout the United States. The firm has completed eight transactions for NorthMarq clients in 2020, totaling nearly $92 million; among Sentinel’s servicing correspondents, NorthMarq ranks #1 in servicing volume.

While generally focused on core real estate debt transactions, Sentinel continues to widen its target by including value-add and bridge-lite transactions, described as those requiring some structure to achieve and/or maintain proforma. They have established relationships with select debt funds to offer construction lending on industrial and multifamily.      

Sentinel Investments offers:  

  • Loan sizes: $7-$50 million with +/-$20-$25MM as the firm’s sweet spot, and larger for portfolio loans.
  • Leverage: Up to 75 percent, with limited appetite for leverage greater than 70 percent.
  • Loan terms:
    • Fixed - While they will extend beyond 30 years for the right opportunity, the firm generally offers loans between 5 – 30 years
    • Float – Up to five years
  • Property types
    • Multifamily and industrial: While the firm’s preferred property types of industrial and multifamily are also consistently in favor across most life companies, those opportunities are the best fit for Sentinel’s process, structure, and pricing, making their product attractive to borrowers.
    • Retail lending is largely focused on grocery-anchored centers; anchored by one of the top grocers in the market with a strong sales trend, demographics and the grocer covering most of the debt service.
    • Office appetite is limited but will consider for the right asset, sponsor, location, and leverage.
  • 30-day Closings
    • Sentinel is known for closing deals in as little as 30 days, which makes them an excellent fit for acquisition financing

Securian Asset Management, based in St. Paul, Minn., is an institutional asset manager specializing in public and private fixed income, commercial real estate debt and equity, pension solutions, and alternative investment strategies with more than $44 billion under management as of September 2019. The asset manager was established in 1984 and traces its history to the founding of parent firm Securian Financial Group in 1880. NorthMarq has completed more than $100 million in financing in 2020 with Securian, and they are a leading servicing relationship for the company.

Securian offers:

  • Loan sizes: $3-$40 million for single-asset loans. Limited appetite for larger portfolio loans.
  • Leverage: Up to 75%
  • Loan terms:  5-30 years
  • Property types
    • Multifamily: Well-maintained Class-B properties located in strong locations with high barriers to entry.
    • Industrial: Primary focus on highly functional and generic industrial with less than 25% finish.
    • Retail: Primary focus on grocery-anchored where grocer is top three in market share and has strong sales and low occupancy cost.  Also, prefer the majority of tenants are essential uses.
    • Office: We continue to be cautious on office.  Our appetite is limited to strong suburban locations with loans well below replacement cost and well-capitalized sponsorship.

Freddie Mac
As they enter the final quarter of 2020, Freddie Mac is poised to ensure liquidity through year-end. Their A2 bond spreads have continued to be very low historically, allowing Freddie to remain competitive on pricing. While certain product types require more detailed analysis, standard conventional deals are receiving strong quotes and closing on time.  Freddie continues to focus on collections and delinquencies for new loan requests, noting that the number of existing loans requesting forbearance has become "de minimis."  As 2020 wraps up, we are all awaiting the FHFA announcement of cap limits and updated mission goals for the agencies for 2021.  In the final week of October, Freddie will be holding their annual conference virtually with an interesting line up of speakers discussing loan performance, changing renter preferences, digital transformation, and diversity and inclusion in our industry.

Fannie Mae
Fannie Mae is focused on ending the year on a high note, which makes now a great time to consider executing your debt plans for 2020 closings. The 10-Year U.S. Treasury is trading at about 0.75%, near the high-end of its one-month trading range and at the median Q4 forecast as determined by a Bloomberg survey of bond strategists. Note rates remain near all-time lows with transactions closing as low as 2.60% in recent weeks. With plenty of cap dollars remaining, and Fannie’s mandate to provide liquidity front-of-mind, we expect pricing to remain competitive relative to other capital sources through the fourth quarter. If you are looking for certainty and competitive pricing, now is the time to consider a Fannie Mae execution.

FHA/HUD
The volume of FHA business continues to be robust in all regions of the country. The FHA fiscal year concluded on Sept. 30, 2020, and the pace of transactions shows no sign of slowing as we head into fiscal year 2021.  As high volume has become the norm, we have begun to experience gradual extensions on processing times for many transactions. FHA is working quite diligently to handle the flow of business, working with lender partners to efficiently manage the increased number of deals.

For our part, NorthMarq is focused on expediting the processing of transactions and properly managing the expectations of all participants. There has been recent industry feedback that FHA is taking a more conservative view of 221(d)(4) opportunities due to concerns about the health of various multifamily markets. The concern centers around the future demand for new multifamily units in markets that have experienced significant new construction over the past few years. NorthMarq will continue to monitor the situation and advise our partners of any significant updates.  Interest rates remain low (2.25% for 223f and 2.85% for 221d4) and expectations are for this favorable rate environment to remain steady. 

In closing:
NorthMarq is on the leading edge of the ever-changing commercial real estate capital markets. We have the pulse of the debt, equity, and investment sales markets through our local professionals and the relationships built through years of experience and performance with our capital sources. We continue to advise and deliver results through our extensive and driven professional team.

Jeffrey Erxleben
Jeffrey Erxleben EXECUTIVE VICE PRESIDENT - REGIONAL MANAGING DIRECTOR
Patrick S. Minea
Patrick S. Minea EXECUTIVE VICE PRESIDENT - REGIONAL MANAGING DIRECTOR
William Ross
William Ross PRESIDENT
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