Life insurance companies are financing a different class of industrial property than the securitized market, according to a new Trepp Research analysis. Their buildings are more than twice as large, carry far less risk on paper and produce about twice the income per square foot.

The median industrial property financed by a life company is 250,000 square feet. The median for commercial mortgage-backed securities and commercial real estate collateralized loan obligations is 112,482 square feet.

The size gap is notable, but the income gap matters more. Life company-financed buildings generate net operating income of $13.47 per square foot, compared with $6.66 for properties in CMBS and CRE CLO deals.

Stronger Numbers Across the Board

The underwriting metrics follow the same pattern. The average debt service coverage ratio on life company industrial loans is 2.47, compared with 1.51 for CMBS and CRE CLO. Debt yield is 15.7% for life company loans and 10.2% for securitized loans.

For CMBS investors, it shows what kind of industrial collateral tends to end up in conduit and CLO pools.

Trepp’s life company figures are based on 533 single-property industrial buildings drawn from 1,648 life insurance loans representing $34.92 billion. The securitized sample covers 5,462 properties across $71.77 billion.

Where The Securitized Market Sits

The securitized market looks roughly like a normal distribution and most of it is concentrated in smaller buildings. Eighty-three percent of the 5,462 properties are under 300,000 square feet and they account for 55% of the total loan balance.

Buildings between 300,000 square feet and 1 million square feet make up 15% of the properties and 35% of the balance. Buildings of 1 million square feet or more are just 2% of the properties but 10% of the balance.

Big-box industrial does show up in securitized deals. It just makes up a small share of the buildings.

Balance Sheets Shape Strategy

Much of the difference likely comes down to how each group lends. Life companies hold their loans on their balance sheets and live with the risk for the full term. That gives them good reason to favor larger, well-leased properties with stable income and conservative leverage.

Securitized lenders sell the risk into the bond market. Pooling loans into securities may let them handle more transactions, including many smaller ones.

Why Deal Size Matters To Life Companies

The deal process may also push life companies toward larger loans. In that respect, they may resemble venture capital firms, where the transaction work and due diligence on a small deal can cost about as much as a big one.

If a 100,000-square-foot loan takes nearly the same effort as a 400,000-square-foot loan, it can be more efficient and economical to fund fewer, larger loans.

The result is a split industrial lending market. Life companies are concentrating on the large, high-income end, while CMBS and CRE CLOs cover the much broader base of smaller buildings.