REACH
RESEARCH
RESULTS
CORE COMMERCIAL MORTGAGE LOANS SEPARATE ACCOUNTS
WHY CORE COMMERCIAL MORTGAGE LOANS (CMLs)? $500 million – $2+ billon Can be tailored to meet specific client objectives
CREDIT QUALITY AAA - BBB+ based on proprietary credit risk rating system
LOAN STRUCTURES • LTV: 40% - 70% • Size: $20 million - $100 million • Terms: 3 - 30 years • Interest rates: fixed and variable
PROPERTIES Office, retail, industrial, multifamily, hotels and self-storage
• Strong relative value • Low credit loss experience • Diversification • High current income stream • Limited return correlation with other asset classes • Call protection • Ability to tailor investments to meet specific needs of investor (e.g. asset-liability matching, credit risk tolerance, etc.) Strong Relative Value: CML Spread Premiums Observed Since 2000 CML Market-Clearing Spread Estimates Less Corporate Bond Composite Index 5 & 10-Year Terms, All Investment Grade Classes and Times Weighted Equally, Annual Effective Yield Basis 10% 9%
Frequency of Observations
ACCOUNT SIZE
8% 7% 6%
Current market position Primarily late 2008, early 2009
Primarily mid to late 2009
5% 4% 3% 2% 1%
Emphasis on properties with durable
190s
180s
170s
160s
150s
140s
130s
120s
110s
90s
100s
80s
70s
60s
50s
40s
30s
20s
0s
10s
-0s
Basis Points of “Excess” Value in Commercial Mortgage Loans (Gross)
>=200
TENANCY
-10s
<=20
0%
Data Sources: Principal Real Estate Investors & Barclays Point (measured weekly)
tenant income streams / minimal volatility
CURRENT MARKET OPPORTUNITY (as of Q2, 2016)
MARKETS
• Limited new supply, healthy demand driven by still strong job growth, low vacancies and low interest rates all continue to benefit the commercial real estate sector.
45+ major U.S. metropolitan areas
INVESTMENT MANAGEMENT Loan origination, closing and reporting managed by our seasoned team
All data as of 30 June 2016
• Compelling space market fundamentals with stable vacancy rates and increasing rents most all metropolitan areas and property types. • Portfolio lenders’ credit metrics remain strong, with insurance companies maintaining average loan-to-value and debt service coverage ratios near their most lender-favorable levels in 50 years. • For 2016, CMLs appear likely to generate excess value averaging 60 to 70 basis points over comparably-rated corporate bonds despite the large supply of capital currently targeting CML investments.