Life insurance companies make loans using the premiums they receive for the life insurance policies, fixed income annuities, and other financial products they sell. Unlike banks, life insurance companies are not regulated by state or federal banking oversight agencies and can make loans without any restrictions. However, despite this lack of oversight, they are extremely conservative underwriters and lend only on high-quality commercial real estate properties. Life insurance companies can be very creative and offer many different types of solutions.

(CMBS or Conduit)
A conduit lender is typically a New York Wall Street investment bank which, through a distinct and separate division of the bank, originates, underwrites, and funds commercial real estate loans the same way that residential mortgage bankers or commercial banks do for residential loans. Investment banks fund conduit loans using their own money or by borrowing money from large commercial banks as warehouse lines of credit. Conduit loans are individual commercial mortgages that are pooled and transferred to a trust for securitization (the process of taking a pool of commercial mortgages and converting them into fixed income securities called commercial mortgage-backed securities or CMBS).

Wall Street investment banks primarily make their money underwriting, creating, and selling fixed-income securities, which are then sold by bond dealers on the open market. These securities, or bonds, are secured and backed by the commercial mortgages, and, in turn, the commercial mortgages are secured by the property in the transaction.

Agency lenders are privately owned or publicly traded commercial mortgage banking firms that originate, underwrite, and fund commercial real estate loans with their own money or with money borrowed for the sole purpose of selling these loans back to one of the two government-sponsored agencies: Federal National Mortgages Association (“Fannie Mae”) and the Federal Home Mortgage Corporation (“Freddie Mac”). Agency lenders only lend on residential related commercial properties such as multifamily housing, senior housing, assisted living, student housing, and manufactured housing. Fannie Mae and Freddie Mac were specifically created by the federal government to provide a secondary market for both single family and multifamily loans, which in turn provides greater liquidity and affordability within the housing market.

Private lenders are companies that raise capital by soliciting individual investors through a process called syndication. Syndication is a method used by private lenders to create a fund that can be used to make commercial real estate loans. Private lenders are very opportunistic and usually promise high returns to their investors in exchange for their money. The anticipated high returns usually require interest rates higher than those available from other kinds of lenders. Some private lenders are often referred to as hard-money lenders because of their high interest rates. Private lenders can often be lenders of last resort. Private lenders are not regulated by any state or federal agency, nor are their deposits insured. Debt Funds can also be created by private placements to institutions like life insurance companies, pension plans, commercial banks or large asset managers. In general, private lenders usually are willing to take a greater amount of risk when lending their money. They can be creative and often lend at higher loan-to-value ratios than other sources, or they lend on properties that have a value-add component such as a currently high vacancy rate, low to no cash flow, or mismanagement.

There are two types of banks, which are not that different when it comes to originating commercial real estate loans. The first type is a commercial bank. Deposits of a commercial bank are insured by the Federal Deposit Insurance Corporation (FDIC). These banks are either state chartered, meaning they can do business only in their home state, or federally chartered, meaning they can conduct business across state lines (federally chartered banks are also known as national associations). The second type is a savings bank, or federal savings bank, which is a remnant of the former thrifts (called savings and loans or sometimes thrift and loan), whose deposits were insured by the Federal Savings and Loan Insurance Corporation (FSLIC).

A credit union is a cooperative financial institution that is owned and controlled by its members. Any person who has an account is a member and part owner of the credit union. Credit unions are different from commercial banks and other financial institutions because they are not open to the general public and are often not for profit cooperatives. However, they are similar in that they have defined geographic coverage and their process and products can mirror that of conventional banks. Deposits of a credit union are insured by the National Credit Union Share Insurance Fund.