Industrial properties performed the best
BOSTON, Sept. 28, 2015 /PRNewswire/ — Total returns on commercial mortgage loans held by life insurance companies fell 1.23 percent in second quarter 2015 – the first negative quarterly return for mortgages since second quarter 2013. Year to date 2015 performance remained positive at 0.92 percent due to first quarter’s 2.17 percent contribution, according to the LifeComps Commercial Mortgage Loan Index.
Second quarter income return was 1.19 percent while price subtracted 2.42 percent. Higher US Treasury yields and wider spreads both contributed to the price decline. Yields on the 10-year Treasury rose 41 basis points over the quarter to 2.35 percent.
The twelve-month total return dropped to 3.28 percent from 6.90 percent last quarter. Annual income of 5.01 percent was offset by a price loss of 1.73 percent attributable to wider credit spreads that overcame the positive effect of lower yields on longer-term Treasuries. The 10-year Treasury yield ended the period 18 basis points lower.
Of the four major property types, industrial performed best over 12 months with a total return of 3.48 percent followed by office at 3.23 percent, apartments at 3.20 percent, and retail at 3.02 percent.
Commercial Mortgage Loan – Total Return by Property Type as of June 30, 2015
Property Quarter 12 months
Apartments -1.47% 3.20%
Industrial -0.47% 3.48%
Office -1.27% 3.23%
Retail -1.41% 3.02%
All* -1.23% 3.28%
*Includes hotel, mixed use, and other commercial