25 Jun White Paper – Commercial Mortgage Loans
Posted at 16:14h
in perspectives
By Voya Investment Management
This paper explores the features, advantages and bene ts of investing in commercial mortgage “whole” loans – debt instruments secured by income-producing commercial buildings such as offices, apartments, industrial properties and shopping centres. A pillar of insurance company portfolios for many years, the asset class is less well understood outside the insurance industry. Among other compelling characteristics, we find:
- Commercial mortgage loans have historically offered attractive and stable income, efficient diversification, favourable risk-based capital treatment, yield protection and tax efficiency.
- Commercial mortgage loans have had a strong return-to-risk ratio, historically producing returns similar to commercial mortgage-backed securities (CMBS) – with less than half the risk.
- The U.S. commercial real estate and mortgage loan markets remain healthy.
- Life insurers are the leaders in commercial mortgage loan resources, with many years of experience, extensive loan origination networks and sophisticated servicing systems.
- Commercial mortgage loan portfolios managed by insurance companies have tended to perform better than the overall market, due in part to conservative underwriting standards.
- Historical simulations show the potential of commercial mortgage loans to expand the attainable efficient frontier for institutional investors.