Skip to main content

Quarterly Update

Commercial Mortgage Loans

CML Q3 2022 Update

A new landscape

Securian AM’s commercial mortgage team originated $210.3 million in loans across 18 transactions at an average net CBE spread of 1.65%, and an average appraised LTV of 46.6% in Q3 2022.

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.

Debt is a big component of commercial investors' decisions around deals. With higher interest rates, the likelihood of additional rate hikes, and the looming backdrop of a potential recession, it’s a significantly different landscape than just a year ago. In many cases, there’s reduced leverage on commercial real estate deals.

COMMERCIAL MORTGAGE LOAN YIELD PICKUP

CML bar loan yield pickup

Source: Securian Asset Management, Inc, MBa. Data as of 09/30/2022. *Year-to-date. 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. CBE: Corporate Bond Equivalent. LTV: Loan-to-Value. CRE is Commercial Real Estate. Loans can lose value, including the potential loss of the entire loan. Commercial Mortgage Loan Yield represents the gross current bond equivalent yield (BEY) of the Securian AM Commercial Mortgage Loans for this period. Commercial Mortgage Loan yield is net of fees, except Securian AM servicing fee. The A Industrial 7-year index includes industrial sector fixed income securities rated A with a 7-year duration, as defined on Bloomberg under the code C0067Y. Yield Advantage represents the difference between the Commercial Mortgage Loan Yield and the A Industrial 7-year yield. The Index is unmanaged and is not subject to fee. Remittance information as of 09/30/2022.

Commercial mortgage loan example – multifamily

CML Ohama, NE
  • Omaha, NE
  • 100-unit Class B apartment community situated on 5.4 acres
  • DSC 1.62x based on 25-year amortization
  • CM 1 rating
  • Loan is below replacement cost and completely amortizes over the lease term
  • Long time borrower of Minnesota Life

Source: Securian Asset Management, Inc. DSC, 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. Although similar in style and structure, the image used is not of the example property referenced above. *CM 1 Rating is reserved for a Commercial Mortgage loan with higher than 1.5 Debt Service Coverage and lower than 85% Loan-to-Value.

Retail leads origination growth

Total commercial/multifamily mortgage debt outstanding rose to $4.4 trillion at the end of Q2 2022, increasing by $99.5 billion (+2.3%) from Q1 2022.

Retail properties (+79%) are leading the increase in Q2 2022 originations compared to Q1 2022.

ORIGINATION BY PROPERTY TYPE

CML bar origination by property type | Chart

The competition for retail listings lifted the average sale price for the most recent four-quarter period to $222 per square foot, up 5.2% year-over-year, with a corresponding 30-basis-point dip in the mean cap rate to 6.0%.

Sources: Marcus & Millichap, Jones Lang Lasalle, MBa Report. Data as of 09/30/2022

COMMERCIAL MORTGAGE LOANS Q3 2022 PRODUCTION

CML bar production property type
Property Type Location  Loan Amount LTV % DSC Term/
Amortization
Average Life Net CBE % Net CBE Spread %

Office

New Jersey

$32,000,000

47.31

1.85

10/25

8.60

3.74

1.58

Industrial

Vermont

$29,000,000

47.46

1.93

10/25

9.28

2.85

1.37

Office

Florida

$4,200,000

54.87

1.88

10/25

8.64

4.00

1.83

Industrial

Michigan

$11,440,000

58.52

1.74

10/25

8.59

3.57

1.63

Industrial

Oregon

$5,700,000

32.51

1.79

10/25

8.66

4.35

1.60

Industrial

California

$10,500,000

25.06

3.48

10/10 IO

9.98

3.27

1.42

Retail

Florida

$35,000,000

48.95

1.65

12/30

10.52

4.25

1.76

Office

New York

$15,000,000

56.11

1.54

15/30

12.90

5.06

1.82

Office

New York

$9,300,000

45.53

1.57

15/30

12.90

5.04

1.80

Industrial

California

$7,000,000

41.67

2.08

10/30

9.78

4.57

1.60

Multifamily

Nebraska

$4,140,000

50.04

1.52

25/25

15.05

4.97

1.85

Industrial

Florida

$3,000,000

29.78

3.95

5/30

4.73

4.25

1.45

Retail

California

$23,000,000

41.82

1.95

10/30

9.84

4.11

1.79

Retail

Missouri

$6,125,000

64.27

1.43

7/25

6.35

4.45

1.58

Retail

Texas

$4,875,000

51.05

1.52

7/25

6.35

4.45

1.58

Retail

Indiana

$3,800,000

56.72

1.50

7/25

6.35

4.45

1.58

Retail

California

$3,000,000

19.74

1.00

8/8

4.28

5.03

1.45

Mixed

Minnesota

$3,200,000

38.32

2.11

12.75/20

9.84

5.36

2.38

 

Source, Securian Asset Management, Inc. As of 09/30/2022. LTV = Loan-to-Value, 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. DSC = 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. IO = Interest Only. Net CBE 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

Production summary

$210.3 MM  — Total production

18 — Transactions

$11.7 MM — Average Loan

46.6% — Loan-to-Value (appraised)*

1.88 — Debt Service Coverage*

9.63 — Average Life

4.04% — Net CBE Yield*

1.65% — Net CBE Spread*

As of 09/30/2022. *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 07/01/2022 to 09/30/2022.

Downloads

REV Download pdf version (pdf)

Loan participations are not securities. 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., Mba, Marcus & Millichap, Jones Lang Lasalle.

Securian Asset Management, Inc. is a subsidiary of Securian Financial Group, Inc.

DOFU 10-2022
2521580