Making construction loans with life companies

Making construction loans with life companies


We recently sat down with PSRS Loan Officers Kostas Kavayiotidis, Mike Davis, and Trevor Blood to discuss the current state of the construction loan market. The following is a discussion of the comparisons of working with life insurance companies vs banks on construction loans:

How active are life insurance companies in the current construction lending market?

Although life insurance companies rarely do straight construction loans, there are many that are currently offering construction-to-permanent loans. They are getting access to deals now that they would want to make loans on in the future by providing construction loans that roll into permanent, fixed-rate loans. Out of the 60-70 life insurance companies currently providing loans, only a small percentage offer construction-to-permanent programs. Those programs break down into construction-to-permanent financing and participating loans. These life companies that may provide financing have limited allocations for these projects, making this a very competitive field for borrowers who want to access that capital.

In what scenario does working with life insurance companies make sense?

Historically, banks have been extremely competitive in the construction lending market. However, due to the latest HVCRE regulations and the fact that borrowers are able to rate lock at application for all the way out to thirty years, life companies are in a unique position to capitalize enough business. Basel III and Dodd-Frank introduced the concept of HVCRE (High-Volatility Commercial Real Estate), which requires all construction loans to be assigned a risk weighting of 150% for risk-based capital purposes, causing banks to be less aggressive in their terms. Life companies aren’t under the same regulations so they don’t have to abide by the same HVCRE rules. As an example, a construction-to-permanent deal currently in the works at our LA office locked their rate fixed at 4.51% for 27 years at application. The ability to lock a long-term rate prior to construction takes out much of the financial risk for the borrower, and helps with forecasting future returns.

Normally, when a construction project is built with a bank loan, the construction loan usually carries a variable rate. The property is then built, stabilized, and slated for a refinancing that could take up to two years. In the case of life insurance companies, a construction-to-permanent is priced at a slight premium to market rates for stabilized property, which can eliminate two years of rate uncertainty as the property gets built.

In today’s market, what are the types of properties that lenders are pursuing?

Lenders are pursuing apartments, 70-75% pre-leased retail, pre-leased + spec industrial core markets, self-storage, and any credit tenant deal.


  • Non-recourse financing
  • Lock rate at application
  • Terms – Floating Rate to 40 Year Fixed
  • Minimal to no reserve structure
  • Current servicing portfolio of $5.5 Billion – Fast servicing decisions
  • Nationwide coverage in the US on all commercial and multi-family real estate
  • Loan sizes from $1 Million to $100 Million+

About PSRS

Founded in 1972, Pacific Southwest Realty Services (PSRS) is one of the largest privately-held commercial mortgage banking firms in the Western United States. Our funding sources include major life insurance companies, banks, credit companies, CMBS and institutional investors.

Access to diverse capital sources insures a high level of success in arranging commercial real estate loans, apartment loans, mezzanine loans, and equity transactions that our clients have come to expect. Our long-term lending relationships give us greater latitude in solving problems and closing loans in a timely manner.  After the loan funds, our experienced, in-house servicing team handles many issues such as assumptions, lease approvals, payoffs, insurance and many other similar matters.

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