By Engel Ching @

Commercial real estate owners are finding it harder to get loans from life insurance companies as the insurers turn their backs on lending to the sector. Leslie Scism and Peter Grant report in The Wall Street Journal:

Life insurance companies, until recently a reliable source of capital for commercial property developers, are turning their backs on office building owners as tens of billions of dollars in office loans come due this year.

Many of these insurers have slowed or stopped making office loans, executives and analysts say, interrupting the sector’s decadelong expansion into commercial property lending. Insurance firms have become skittish about rising vacancy rates and falling rents, reflecting the growing popularity of remote work and return-to-office rates that are still around half the levels workplaces enjoyed prepandemic.

A February survey by Goldman Sachs Asset Management found that 15% of insurers with commercial real-estate lending businesses said that they plan to shrink their activity this year, more than three times as many in the same survey last year.

Principal Financial Group Inc., a large Iowa-based insurer, told investors in an early March call that it is “putting a pause” on deploying any significant new capital into commercial-mortgage lending. “We don’t want to invest that capital until we believe that the markets” have sorted out valuations, said Patrick Halter, chief executive of the insurer’s Principal Asset Management unit.

The retreat by insurance lenders is bad news for building owners at a time when other lending sources have all but dried up. Banks, the largest commercial property lenders, have been pulling back since last summer. Their aversion to commercial real estate intensified after the failures in March of Silicon Valley Bank and Signature Bank, industry participants say.

Life insurers hold about 15% of the outstanding $4.5 trillion in U.S. debt backed by commercial real estate, according to Moody’s Analytics. These firms are particularly well suited to fill any gap left by the lack of bank lending because their source of capital is customer’s premiums, not customer deposits. That makes insurers less vulnerable to the bank runs that ruined Silicon Valley and Signature banks, according to mortgage brokers and insurance executives.

The lack of readily available financing is particularly worrisome this year, with so much commercial property debt coming due. A record $270 billion in commercial mortgages held by banks is set to expire this year, according to data firm Trepp Inc. About $80 billion of that is backed by office buildings.

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