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Quarterly Update

Commercial Mortgage Loans

CML Q2 2022 Update

Yields on the rise

  • Securian AM’s commercial mortgage team originated $307.6 million in loans across 31 transactions, at an average net CBE spread of 1.53% and an average appraised LTV of 48.1%.
  • With the Federal Reserve executing the steepest rate hikes in decades, lenders that benchmark to credit markets are beginning to push their spreads and quoted rates higher.
  • Government Sponsored, MBS, Life Insurance companies continue to lead a tremendous volume of capital ($74.2 Billion in Q1 2022) pursuing commercial real estate investments.
  • The level of commercial/multifamily mortgage debt outstanding now stands at $4.25 trillion.

COMMERCIAL MORTGAGE LOAN YIELD PICKUP

Loan yield pickup

Commercial mortgage loan example – office

CML Melville, NY
  • Melville, NY
  • 106,125 square foot multi-tenant office building
  • DSC 1.62x based on 25-year amortization
  • CM 1 rating*
  • Experienced and well-capitalized sponsorship who developed the asset and is a long-term holder and investor
  • Strong location with easy access to the Long Island Expressway and the Northern State Parkway

Source: Securian Asset Management, Inc, MBa, Bloomberg. Data as of 06/30/2022.

*CM 1 Rating is reserved for a Commercial Mortgage loan with higher than 1.5 DSC and lower than 85% LTV.

Investors confident in “gateway market” offices

Investors are exhibiting continued confidence in office assets in gateway markets like Los Angeles, New York, the Bay Area and Washington, D.C. Transaction velocity set a record in the last 12 months in Boston, lifted by the trades of biotech and pharmaceutical-related assets.

Sales also reached the highest level since 2018 for Chicago, New York City and Los Angeles office properties. Washington, D.C. recorded liquidity near pre-pandemic norms, while the Bay Area is trending toward 2019 levels, despite the slowest pace of sales recovery of any gateway market.

Over the past decade, the tech industry has represented much of the leasing activity in the market and expanded beyond the traditional hubs of the Bay Area, Seattle, Los Angeles, and New York City into lower cost locations with significant talent pool — Atlanta, Austin, Denver, and Orlando.

During the health crisis, the decentralization of the sector advanced more sharply into even smaller tech markets, including Charlotte, Nashville, and San Antonio.

In Q1 2022, the largest office vacancy drops occurred in Western metros like Las Vegas, Denver, and San Jose, as well as in Southern markets like Miami, Houston, Jacksonville, and Raleigh-Durham. In Q2 2022, the return-to-office figures rose sharply in San Francisco, while Los Angeles and San Jose saw substantial, but less sizable, gains.

Sources: Securian Asset Management Inc., CBRE, Visual from Marcus & Millichap Research Services . Opinions expressed herein are those of Securian AM only, and only as of 06/30/2022. As of 06/30/2022. *Average. Loan-to-Value (appraised) is the original loan amount divided by the most recent appraised value. LTV will adjust with monthly principal payments. LTV adjusts with July and December updates to adjusted appraisal values. Debt Service Coverage is the amount of the property’s net income from the current year as a multiple that is available to pay annual debt service of the loan assuming a 25-year amortization. Net CBE Yield is the net current bond equivalent interest rate or the net interest on the mortgage after deducting servicing fees. Net CBE Spread is the difference between the Treasury curve and the NET CBE interest rate. Preceding net calculations do not include Securian AM servicing fees. Loan production means loans funded during the period of 04/01/2022 to 06/30/2022.

COMMERCIAL MORTGAGE LOANS Q2 2022 PRODUCTION

Production by property type
Property Type Location  Loan Amount LTV % DSC Term/
Amortization
Average Life Net CBE % Net CBE Spread %
Apartment Ohio $5,600,000 58% 1.79 10/30 8.83 2.88% 1.48%
Apartment Ohio $8,400,000 56% 1.72 10/30 8.83 2.91% 1.51%
Retail (Anchored) New Jersey $25,000,000 55% 1.63 10/30 9.73 2.80% 1.38%
Industrial Illinois $23,100,000 63% 1.49 10/30 9.69 3.37% 1.61%
Retail Maryland $13,250,000 32% 2.89 10/15 7.00 2.62% 1.30%
Apartment Michigan $5,000,000 24% 3.25 15/25 11.6 3.37% 1.55%
Apartment Maryland $8,000,000 28% 2.79 10/30 9.23 2.97% 1.14%
Apartment Michigan $9,350,000 62% 1.49 15/30 13.92 3.62% 1.62%
Industrial Florida $9,000,000 60% 1.48 22/20 12.94 3.21% 1.47%
Apartment Indiana $14,650,000 43% 1.97 10/30 8.87 3.35% 1.54%
Retail (Anchored) Pennsylvania $3,100,000 41% 2.00 20/17 12.06 3.66% 1.64%
Industrial California $5,000,000 14% 4.54 15/0 14.97 3.57% 1.33%
Office New Jersey $6,500,000 41% 2.57 10/30 9.64 3.57% 1.81%
Industrial Washington $3,600,000 42% 1.62 10/25 8.56 3.44% 1.58%
Retail Indiana $5,200,000 44% 2.24 10/25 8.63 3.63% 1.89%
Office Pennsylvania $12,200,000 63% 1.62 10/25 8.56 3.69% 1.84%
Apartment Nebraska $11,400,000 46% 1.59 10/30 8.86 3.31% 1.38%
Self Storage Utah $3,500,000 40% 1.92 10/30 8.93 3.60% 1.42%
Industrial California $3,000,000 24% 3.00 12/25 9.94 3.77% 1.48%
Office New York $10,200,000 36% 1.62 10/25 8.62 3.76% 1.84%
Industrial Washington $4,100,000 49% 1.99 10/0 9.96 3.43% 1.46%
Industrial Washington $22,500,000 47% 1.99 10/0 9.96 3.52% 1.56%
Mobile Home Park California $8,000,000 21% 2.51 5/0 4.96 2.59% 1.36%
Industrial California $6,900,000 39% 1.78 5/0 4.98 2.99% 1.33%
Industrial California $6,900,000 39% 1.78 5/0 4.98 3.36% 1.69%
Industrial California $13,000,000 46% 1.61 15/30 12.34 3.32% 1.40%
Retail (Anchored) Virginia $38,000,000 62% 1.46 12/30 11.6 3.64% 1.60%
Office Michigan $6,900,000 49% 2.15 10/20 8.13 4.37% 1.86%
Apartment Washington $11,000,000 39% 1.93 10/30 8.91 3.76% 1.41%
Industrial New York $3,200,000 53% 2.27 10/15 7.14 3.36% 1.44%
Office New York $2,000,000 47% 1.97 10/15 7.15 3.47% 1.55%
    $307,550,000 48.1% 1.91   9.63 3.36% 1.53%

Source, Securian Asset Management, Inc. As of 06/30/2022.

*CM 1 Rating is reserved for a Commercial Mortgage loan with higher than 1.5 DSC and lower than 85% LTV.

Production summary

$307.6MM  — Total production

31 — Transactions

$9.9MM — Average Loan

48.1% — Loan-to-Value (appraised)*

1.91 — Debt Service Coverage*

9.63 — Average Life

3.36% — Net CBE Yield*

1.53% — Net CBE Spread*

As of 06/30/2022. *Average. Loan to Value (appraised ) is the original loan amount divided by the most recent appraised value. LTV will adjust with monthly principal payments. LTV adjusts with July and December updates to adjusted appraisal valu es. Debt Service Coverage is the amount of the property’s net income from the current year as a multiple that is available to pay annual debt service of t he loan assuming a 25 year amortization. Net CBE Yield is the net current bond equivalent interest rate or the net interest on the mortgage after deducting servicing fees. Net CBE Spread is the difference between the Treasury curve and the NET CBE interest rate. Preceding net calculations do not include Securian AM servicing fees. Loan production means loans funded during the period of 04/01/2022 to 06/30/2022.

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Commercial Mortgage Lending (CML) is not an advisory service and does not involve securities but is included in the total assets under management. Lending involves many inherent risks. The purchase of an ownership percentage in a commercial mortgage loan described herein is a purchase of a portion of a commercial mortgage loan and is a sale transaction between Minnesota Life Insurance Company (as lender) and the purchaser. Securian Asset Management, Inc. (“Securian AM”), an affiliate of Minnesota Life, analyzes the property and the loan terms to determine whether the loan is suitable for Minnesota Life Insurance Company only. Neither Securian AM nor Minnesota Life Insurance Company make any representations or warranties about the underwriting process to the purchaser. Securian AM is a registered investment adviser but does not act as such in performing mortgage loan underwriting and servicing and therefore does not provide investment advisory services to any purchaser in its commercial mortgage loan sale programs. It should not be assumed that loans were or will be profitable, or that such production will continue on the same terms due to changing market conditions. Lending involves many inherent risks, including the potential loss of the entire loan.

The specific loans identified herein are not representative of all of the loans produced, and it should not be assumed that the production of such loans was or will be profitable, or that such production will continue on the same terms due to changing market conditions. Lending involves many inherent risks, including the potential loss of the entire loan.

This material may not be reproduced or distributed without the written permission of Securian Asset Management, Inc.

Sources: Securian Asset Management, Inc., Bloomberg, CBRE, FRED.

Securian Asset Management, Inc. is a subsidiary of Securian Financial Group, Inc. For Institutional Investment Use Only.

DOFU 7-2022
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