Watch for life companies to increase allocations in 2026 and become more aggressive on proceeds and spreads. There are a number of life companies that were under-allocated going into Q4 so there will be a lot of capital that will need to be placed. Originations will increase next year since there will be more opportunities for LCs to lend. When rates are below 6%, borrowers are more willing to transact. The market is starting to see more activity, especially on the transactions side, which has helped with creating more data points. So, watch for more acquisition activity next year. Many life companies are getting payoffs as well, which will spur lending. There has been demand for five-year terms over the last few years but expect a return to 10-year money as rates settle.
Life companies will prefer to win deals with pricing versus leverage. There is a subset of LCs that cannot compete with the low spreads so they will be willing to do deals with more hair in order to grab yield. Watch for them to consider different property types in search of higher yields, although they will not stretch too far up the risk curve. Life companies will look at office deals more than they have been due to the strong interest from equity and improving fundamentals. Look for more conservative underwriting for multifamily in markets with flat rents.
New York Life and TruStage believe life company lending should increase in 2026, while Nuveen expects it to be stable. Farm Bureau foresees increased production in 2026 over 2025 by 10% to 15% and slightly narrowing spreads. Aegon predicts LC lenders will continue to expand allocations to CMLs in 2026 and that the lending landscape will continue to be highly competitive. Also, keep an eye out for MetLife, PGIM Real Estate, Pacific Life, Voya Investment Management, Northwestern Mutual, Principal, PPM, Thrivent, Nationwide, Cigna, PIMCO, National Life Group, Lincoln, Symetra, State Farm, Manulife, Guardian Life, Protective Life, Kansas City Life, StanCorp Mortgage Investors and Security National Commercial Capital to be active next year.
Some bridge lenders that have a bucket of life company money — Apollo Global Management owns Athene, KKR owns Global Atlantic and HPS/Guardian with Blackrock — that they are trying to put out will also strive to compete. Look for these shops pushing to increase allocations next year with unlimited appetite and creative structures.
Due to increased allocations and having more capital to place, anticipate credit boxes widening and underwriting stipulations to soften as the market heats up. Leverage will increase, interest-only terms will increase, while DSC ratios and debt yields will decrease. Watch for debt yield to especially creep down since rates are dropping. Borrowers will see 50% to 65% leverage, with a few trophy deals pushing up to 70%. Rates will be in the 5% to 5.5% range. Industrial will see 10%+ debt yield, while multifamily will start as low as 8.5%. Life companies will prefer 9%+ debt yields and will provide the best pricing for those deals. DSC will be 1.30x to 1.35x with the best pricing.
Life companies will target multifamily, industrial, self storage and grocery-anchored retail. Look for life companies to try to pick up multifamily deals in lease-up or offer more creative structures with flexible prepayment in order to compete with the agencies. Office will be considered selectively depending on sponsor, asset quality and loan metrics. Life companies will seek office properties in the top markets that are performing well. The office market is still resetting and there is significant obsolete inventory that needs to be redeveloped. Industrial vacancy has been sitting for extended periods of time in select markets, therefore depending on the market, lenders will be hesitant to lend on vacant industrial. Look for an aversion to big-box retail and underperforming hotels.
Anticipate life companies to generally shy away from tertiary or secondary markets. They like to be in mainstream markets with strong demographics. Certain multifamily cities that are having trouble because of overbuilding, such as Austin and San Antonio, will see some difficultly. Philadelphia and other CBD markets will also be tougher because of supply issues.
LCs prefer experienced borrowers and only target clean sponsors without blemishes on their credit histories or have bankruptcy risk. Sponsor with 10% of the loan amount in liquidity and 100% in net worth will be the most sought after. Lenders want to see a strong sponsor with a favorable track record. They will look at how they performed in the past and what their existing portfolio looks like.
