Life insurers suffer worst returns on real estate loans in decades
Life insurance companies may be feeling a bit sickly about real estate. They are enduring the worst returns in two decades on property mortgages, according to Trepp, a data provider that tracks securitized mortgages. Trepp’s index for life insurance returns is down 11.8 percent year-to-date. This will be the worst year for life insurers since Trepp started collecting the data in 2008. It’s not a crypto-like crash, but insurers count on such investments to deliver steady, if unspectacular, returns. The index is closely watched because life insurance companies account for 12 percent of all commercial real estate lending, according to Trepp. If life insurers pull back it could significantly affect financing for major real estate projects, as many bank lenders have also retreated to the sidelines. But while life insurance returns are down, it is not Armageddon. There has yet to be widespread distress or cash flow problems at the properties backing the loans. “We haven’t seen big credit problems emerging,” said Matt Anderson, a managing director at Trepp. The bigger issue is that higher interest rates have led to lower valuations across fixed income as a whole. Government and corporate bonds have both been stinkers of late. Life insurance is no different. Higher interest rates have lowered valuations on properties backing the loans held by life insurers because future cash flows are being discounted, Trepp said. Anderson noted, however, that life insurers have yet to officially record these negative returns. Insurers plan to hold their loans on their books instead of writing them down immediately as a loss. So while a negative return looks scary, it is not yet cause for alarm. “Their intent is to hold through the term of the loan,” said Anderson. But it will be another matter if properties backing the loans fall into distress. If foreclosures ramp up or properties can’t produce enough cash flow, life insurers will be hit with a one-two punch as they are already battling higher interest rates. This could not only lead to even lower returns for life insurance investors, but it could also force life insurers to pull back on lending. So far, life insurers are continuing to make new loans. In the second quarter, life insurers’ commercial mortgage portfolios grew at an annual rate of 9.1 percent, according to Trepp. “Capital flows into life company mortgage lending have been strong,” Trepp said. “Borrower demand has remained strong.”
Torkian nabs $145M loan for Upper East Side development
The Torkian Group picked up a nine-figure construction loan for its project taking shape on the Upper East Side. Hersel Torkian’s firm landed a $145 million loan from Valley National Bank for its development at 250 East 83rd Street in Yorkville, according to documents reported by PincusCo. Signature Bank previously provided a $15.7 million loan for the project. Torkian last year filed plans to build a 23-story mixed-use property on a quarter-acre lot at the corner of East 83rd Street and Second Avenue. The 171,000-square-foot property is expected to include 6,500 square feet of commercial space. A representative for Torkian told The Real Deal there will be 128 residential units — 22 more than the initial project filing suggested. The inclusion of affordable housing is possible, but unclear. Excavation is progressing and foundation work would likely begin in the winter, New York YIMBY reported last week. Amenities are expected to include a gym, rooftop lounge, theater and a children’s playroom. SLCE Architects is the architect of record for the building, which is expected to open in the fall of 2024. The development is a stone’s throw away from Naftali Group’s new development at 200 East 83rd Street. Naftali signed 58 contracts with a last asking volume totaling $422.6 million at the property last year, making it the year’s best-selling new development. The Torkian Group has a handful of properties in Manhattan, including Solari in Midtown South, Greenwich House Lofts in the Financial District, the Cameo NYC in Hell’s Kitchen and the York in Midtown. In 2019, Torkian agreed to pay the city $300,000 to settle claims the landlord wrongfully marketed and leased illegal short-term rentals at three buildings, including the Greenwich House Lofts. Representatives for the developer said it didn’t have any “involvement whatsoever with any alleged illegal activity perpetrated by certain tenants.”
Going for the jackpot: A look at the high rollers competing to build NYC casinos
Developers, place your bets. Next month, state officials will start accepting proposals for new casinos in and around New York City. Six bigwigs have already unveiled visions for casinos in the five boroughs, pledging to parlay their winnings into the city’s economic recovery. Firms proposing venues in Times Square and Hudson Yards — tourist attractions near transit hubs — have an edge, though opposition from local elected officials could cost them what is sure to be a lucrative pot. Other bidders are hoping to create entertainment ecosystems in Queens and Brooklyn. Technically, three licenses are up for grabs, but only one is likely truly in play. Regulators may favor two sites that already have gambling — Aqueduct Racetrack and Yonkers Raceway — because the application provides a “speed to market” bonus, said James Featherstonhaugh of Saratoga Casino Holdings, which is working with Joe Sitt’s Thor Equities on a Coney Island bid. The remaining license does not have to go to the city, just downstate. Manhattan is where the most money is, but has historically been a hard sell because few Manhattanites want a casino. Approvals hinge on local support. If the City Council member is not on board initially, a proposal may face trouble later on, given that it would likely need to go through the city’s land use review process. Details on individual proposals are incomplete, given that the state has not yet released a request for applications. Some developers have put some cards on the table, while others have yet to show their hands. The Real Deal took a look at the players going all-in.
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