In the current economy, most commercial properties are finding a hard time getting financing. That’s how a Texas life insurance company, along with the entire insurance industry, is able to get in into the real estate market.

Traditionally, Wall Street banks have had the market tied up in commercial property lending. In fact, they still have about 33% of the market on their books. However, with the risks they took over a period of about 10 years, they have come to a grinding halt, and are no longer making the loans for which they have been known.

The banks make commercial real estate loans, then pool the mortgages so that they can move the risks off of their books. This leaves them free to make more loans, taking bigger risks and not screening their clients as well. The resulting crash of the real estate market dealt a crushing blow to the Wall Street banking forms, who are now gun-shy about lending even to the most reputable clients. In fact, Wall Street banking investments grew only .1% over the second quarter of this year.

Contrast this with the way insurance companies make commercial real estate loans. The insurance companies keep the loans on their own books, rather than pooling them. This makes for a very real-time picture of the money out, and a more personal approach to the lender/borrower scene. The insurance companies are very selective about to whom they loan money, rather than taking risks that were the norm on Wall Street. The result is that their loans grew at 1.5% in the second quarter of this year.

So, how does all of this work? The Wall Street banks pool their mortgages, and then sell bonds to investors to make further money on the loans, over and above the interest they are charging. However, to sell bonds, the banks have to pay an interest rate that investors find alluring. To do so, the banks must charge more interest on the loans they offer. This makes for more expensive loans for the borrower, all to keep bond purchasers happy.

This becomes even more volatile in economic hardship. When Standard and Poor’s failed to issue a commercial mortgage bond rating, it scared most investors away from real estate bonds, putting the banks in the unenviable position of having to sweeten the pot, so to speak. The end result of this is that the commercial mortgage market for the investment banks shrank from a projected $50 billion to below $35 billion.

The response from Texas life insurance companies and other insurance companies as well has been the opposite. They have increased their mortgage allotments, making them the biggest party in town. In this fractured market, the insurance lenders can offer competitive rates. In addition, their returns are doing quite well. By the end of last year, 99.6% of the commercial mortgage loans made by insurance companies were in good standing.

Of course, Texas life insurance companies continue to sell life insurance, too.