SAN DIEGO—Tightening spreads and yields on new investments, as well as e-commerce's effects on traditional retail are some of the challenges life-company lenders are facing today, PGIM Real Estate Finance's chief investment officer Paige Hood tells GlobeSt.com. We spoke with Hood in advance of MBA's CREF/Multifamily Housing Convention & Expo 2018 conference in February about the challenges these lenders are facing and how they are being impacted by alternative lending sources.

GlobeSt.com: What do you see as the chief hurdles life-company lenders are facing today?

Hood: While there are some concerns in the market, fundamentals remain strong as we begin 2018. The underlying economy is positive, with steady job growth. Commercial real estate supply and demand is relatively in balance in most markets and for most property types, and there is ample liquidity from both an equity and debt perspective for CRE. However, the issues that are of greatest concern to lenders are:

• Tightening spreads/yields on new investments. With ample lender appetite from life companies, banks, the GSEs and CMBS, spreads have been contracting, even as treasury yields rise. With acquisition activity declining and likely fewer maturities, particularly in CMBS, loan demand could be lower in 2018, further pressuring loan spreads. To date, CRE mortgages remain attractive relative to public fixed income alternatives; however, if spreads continue to tighten, you may see some life-company lenders reduce allocations to the asset class.
• E-commerce's effects on traditional retail. Pressure on retail properties from on-line retailing has caused many life company lenders to become much more selective in that space, particularly as it relates to malls. Most life-company retail-loan portfolios are weighted toward the more defensive grocery-anchored centers and fortress malls, but many have raised the sales and occupancy levels required to underwrite a new loan.

GlobeSt.com: As they become more prominent, how are alternative lending sources impacting life companies in multifamily lending?