How W&D refinanced 6 construction loans with a $290 million credit facility from an insurance company for Continental Properties

Continental Properties Company, Inc. is a national developer and operator of multifamily communities, retail, and hospitality properties. Since its founding in 1979, Continental Properties has established over 129 apartment communities spanning 34,000+ homes in 19 states.

The company has historically relied on its bank for short-term capital for construction or recently completed assets. However, the general withdrawal of the banking sector has created an opportunity. With the lack of available bank capital, the company needed other means for short-term capital.

Walker & Dunlop took a different approach to solving these financing challenges. We created a product/term sheet for the client and then found a company willing to meet these needs.

The solution came from an insurance company. Historically, insurance companies offered specific products and didn’t deviate from the formula. Just 10 years ago, these types of deals were unheard of. But things are changing: insurance companies are now more open about duration and are actively tracking supply and demand. If there’s demand for short-term liabilities, they’re more opportunistic about capitalizing on them.

Relationships are key to this kind of deal. We have the reputation in the market to transact in this space. This was very much a custom transaction for this client and this lender, and we leaned on these established relationships to complete a successful refinancing of $290M.

The challenge

Life insurance companies have long been lenders in commercial real estate, including multifamily properties. But their loan appetite has been historically limited to a handful of products, most notably permanent debt on stabilized properties and construction-to-permanent loans.

Given the interest rate turmoil and banking dislocation that began in the summer of 2022, however, insurance companies have begun to expand their loan product offerings.

In the last couple of years, life insurance companies began to creatively expand their product offerings to capitalize on the opportunity in the market created by banks tightening their credit standards, as well as the dislocation in the debt capital markets, which are often used by alternative lenders (for example “debt funds”) to finance their lending activities. In addition to banks being the primary source of lending to ground-up development projects, both banks and alternative lenders have been a major source of floating-rate bridge loans to CRE sponsors, especially as borrower demand increased in the face of declining interest rates prior to 2022.

“Recently, life insurance companies have been expanding their product offerings to capitalize on market opportunities created by banks tightening their credit standards, as well as the dislocation in the debt capital markets,” said Jim Cope, executive vice president of Capital Markets at Walker & Dunlop. “We are thrilled to be working alongside a life insurance company and Continental to replicate this bank product and bridge the gap for clients, providing a financing solution in a market where it lacks.”

Our solution

Although insurance companies are not relaxing credit standards, they view the current market as a new opportunity to grow new relationships with sponsors on high-quality assets.

In this deal, the client is building a suburban affordable new properties. It’s designed to be a living, breathing, cyclical set of capital, which is what makes this deal unique. It’s typical of banks, but to get a life insurance company to buy into an accordion-like deal is rare. They don’t want unfunded commitments because they have to reserve against it.

We tailored this transaction to the client’s needs on both sides. We included a feature where the deal would resize itself to the new number the client needs rather than paying off the $290M facility.

The results

Broadly speaking, we’re seeing insurance companies offer fixed-rate, short-term loans (5 years) with flexible pre-pay options. Developers are seeking these options to act as floating-bridge loans for properties that have not achieved stabilization or when anticipated sale dates have had to be pushed out, for example.

Some insurance companies are moving into the construction loan space, historically a stronghold for retail banks, to offer products with favorable terms for in-demand assets such as multifamily homes and industrial properties. Loan terms include maturities matched to construction completion and stabilization (i.e., dropping the “permanent” piece of the construction to perm loan), floating rates, and flexible pre-pay, terms that have traditionally been sought and offered on ground-up development projects.

Custom solutions are also options when you have the right relationships. In this case, the life insurance company we partnered with stepped in to creatively fill a need in the marketplace.

“We leveraged Walker & Dunlop’s broad and deep access to capital to refinance these construction loans due to our trusted partnership with Walker & Dunlop and the reliability and certainty of execution they brought to the table,” noted Ed Madell, CFO of Continental Properties. “The market is changing, and we believe opportunities come in all shapes and sizes. Seizing unique business opportunities often means creating opportunities with others, which in this case is the creation and funding of hundreds of affordable housing units leveraging our partnership with Walker & Dunlop.”

Final takeaways

In commercial real estate, two deals are rarely alike. Unique situations require creative problem-solving. Walker & Dunlop excels in finding best-fit relationships and solutions that will enable our clients to execute deals with confidence.

Reach out to W&D and start the conversation. There is capital looking to deploy and we have the relationships and the experience to make it happen.