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Quarterly Update

Commercial Mortgage Loans

CML Q4 2022 Update

Labor market tightness


Securian AM’s commercial mortgage team originated $335 million in loans across 34 transactions at an average net CBE spread of 1.56%, and an average appraised LTV of 37.9% in Q4 2022.

Continued labor market tightness will keep the Fed on track to continue raising interest rates in the first half of 2023. Although the rate of inflation and wage growth have eased, the challenge with inflation remains and is steering the Fed’s monetary policy, which if loosened too early, may lead to the revival of rampant inflation.

The slower job growth in 2023 will adversely affect real estate fundamentals before a broader economic recovery in 2024 improves market conditions. Capital markets activity will remain subdued over the near term but should recover as the markets adjust to the higher finance costs and more conservative property valuations.

COMMERCIAL MORTGAGE LOAN YIELD PICKUP

Loan yield pickup q4

Source: Securian Asset Management, Inc, MBa. Data as of 12/31/2022. *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 12/31/2022.

Commercial mortgage loan example – industrial

CML Elmwood Park NJ
  • Elmwood Park, NJ
  • Two single-tenant flex industrial properties totaling 113,700 square feet
  • DSC 1.51x based on 25-year amortization
  • CM 1 rating
  • Infill location with 1.30% submarket vacancy rate
  • Repeat ML sponsorship, who are long-term holders of real estate

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.

Demand to remain strong

Industrial: Although higher interest rates will slow the economy, industrial & logistics market fundamentals are very strong and will likely remain so throughout 2023.

Multifamily: Rents may soften as the economy slows, even though a strong labor market favors the sector. Multifamily demand will be bolstered by less single-family housing affordability, exacerbated by rising interest rates and limited supply.

Healthcare: Demand for healthcare properties should remain resilient due to an aging population and a return to pre-pandemic patterns of healthcare utilization.

ORIGINATIONS BY PROPERTY TYPE

Production and outlooks q4

Sources: Marcus & Millichap, Jones Lang Lasalle, MBa Report. Data as of 12/31/2022.

Commercial mortgage loans Q4 2022 production

PRODUCTION BY PROPERTY TYPE

Production by property q4
Property Type Location Loan Amount LTV % DSC Term/
Amortization		 Avg. Life Net CBE % Net CBE Spread %
Industrial California $4,850,000 19.66 3.79 120/360 8.84 3.09 135
Industrial California $19,500,000 24.74 3.41 120/360 8.89 3.38 139
Industrial California $9,100,000 23.83 2.02 120/360 8.89 3.36 137
Industrial California $12,200,000 63.41 2.02 120/360 8.93 3.63 164
Office Delaware $5,200,000 46.30 2.05 240/240 11.18 3.58 163
Office California $19,500,000 26.96 3.28 84/84 3.65 3.16 141
Office Tennessee $3,000,000 45.30 1.60 120/300 8.78 4.82 175
Retail Washington $6,500,000 24.12 2.82 120/300 8.71 4.4 142
Retail New Jersey $7,262,500 40.37 2.11 120/240 8.2 4.59 173
Retail Pennsylvania $6,962,500 41.85 2.20 120/240 8.2 4.58 174
Retail Texas $6,500,000 45.75 1.78 120/300 8.74 4.84 178
Retail Florida $3,900,000 49.67 1.63 120/300 8.74 4.96 174
Industrial New Jersey $12,200,000 44.28 1.51 120/300 8.71 4.57 157
Office Washington $3,200,000 18.38 3.50 180/180 8.28 4.24 146
Office Colorado $26,000,000 45.61 1.87 60/360 4.85 4.63 191
Apartment Florida $9,000,000 28.99 1.75 120/360 9.08 4.41 164
Apartment Michigan $3,100,000 40.79 1.98 120/360 9.1 4.59 182
Apartment Michigan $4,600,000 38.98 2.08 120/360 9.1 4.54 177
Apartment Michigan $3,000,000 34.48 2.08 120/360 9.1 4.59 182
Apartment Michigan $2,500,000 28.74 2.08 120/360 9.12 4.7 193
Apartment Oregon $7,250,000 33.01 1.75 120/360 9.03 4.04 142
Apartment Wisconsin $12,000,000 25.53 2.99 180/0 14.96 4.46 141
Industrial Oregon $3,700,000 48.05 1.48 120/300 8.72 4.52 171
Industrial Oregon $4,700,000 47.00 1.59 144/300 10.12 4.57 179
Apartment Texas $10,400,000 33.60 1.54 120/300 8.71 4.73 165
Apartment Wisconsin $18,700,000 39.97 1.71 180/180 8.37 4.5 127
Apartment Wisconsin $25,700,000 41.59 1.70 180/180 8.37 4.51 128
Apartment Wisconsin $16,000,000 51.15 1.30 240/240 11.61 4.8 154
Other Oregon $3,500,000 21.82 1.86 120/240 8.27 4.97 161
Apartment California $3,100,000 38.22 1.55 120/360 9.79 4.77 150
Office Washington $15,500,000 41.89 1.76 120/360 9.13 5.13 169
Industrial California $5,400,000 27.69 1.27 120/360 9.1 5.01 146
Apartment Michigan $38,000,000 37.44 1.53 60/0 4.92 5.66 163
Retail Maryland $3,000,000 41.16 2.47 89/360 7.04 4.95 200

Source, Securian Asset Management, Inc. As of 12/31/2022. 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 the period.

Production summary

$335 MM  — Total production

34 — Transactions

$9.85 MM — Average Loan

37.9% — Loan-to-Value (appraised)*

2.03 — Debt Service Coverage*

8.11 — Average Life

4.48% — Net CBE Yield*

1.56% — Net CBE Spread*

As of 12/31/2022. *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 10/01/2022 to 12/31/2022.

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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.

For Institutional Investment Use Only.

DOFU 1-2023

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