Private Commercial Mortgage Returns Down in Third Quarter 2016

By a News Reporter-Staff News Editor at Real Estate Weekly News -- - Returns on commercial mortgage loans held by life insurance companies fell in third quarter 2016, generating a 1.05 percent total return compared with 2.27 percent in second quarter, according to the LifeComps Commercial Mortgage Index.

Income contributed 1.13 percent while price subtracted 0.08 percent. Negative price return in third quarter stemmed from an upward shift in the treasury yield curve which outweighed the net positive contribution from mortgage spread movement, credit migration and portfolio growth. The yield on the ten-year Treasury climbed 11 basis points over the quarter to 1.60 percent.

The twelve-month total return declined to 6.81 percent from 7.41 percent in the prior quarter. Income contributed 4.87 percent while price added 1.94 percent. Lower Treasury yields boosted price performance as the yield on the 10-year Treasury finished the period 46 bps lower while spread movement, credit migration and portfolio growth dampened the gain.

Of the four major property types, apartment loans performed best for the quarter with a return of 1.36 percent compared to 0.95 percent for office and retail, and 0.77 percent for industrial. Apartments also fared best over 12 months with a return of 7.25 percent followed by retail at 6.94 percent, office at 6.57 percent and industrial at 5.88 percent.

Commercial Mortgage Loan - Total Return by Property Type as of June 30, 2016

Keywords for this news article include: Mortgage, LifeComps, Real Estate.

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