I’ve written several times in the recent past about the involvement of life insurance companies in shopping center financing.  Whereas there has been great attention paid in the press to the difficulties of the automobile companies, of the banks, and of AIG, not much has been said about the exposure of many life insurance companies to the adverse conditions of the credit and commercial real estate markets.  That may be the case because, in the public’s mind, and in that of financial reporters, the connection between life insurance companies and the real estate industry is not immediately obvious.  Yet, the connection is real, it is direct, and it is very large.

In the old downtowns across the country, typically each building was individually owned, most often by the operator of the business therein – and often, the family lived upstairs.  It is generally understood that Don Casto, of Columbus, Ohio, built the first true “shopping center” in 1928 – several stores, in “strip” fashion, in single ownership, featuring their own parking.  In those days, financing was accomplished largely through local banks, which relied principally upon the personal signature of the borrower.

Later, as shopping centers grew in size and began to feature a conventional department store as the key tenant, a few life insurance companies began to see the potential of lending to this source of stable revenue.  The field grew when department stores which historically had been aggressive competitors agreed to enter the same shopping center.  Now, we have the apogee of the genre, the mega-mall, exemplified by the Mall of America near Minneapolis, which features several department stores, hundreds of smaller shops, and an entertainment complex covering many acres of ground.

Many life insurance companies and pension funds have invested aggressively in shopping center mortgages for many decades.  Some of these loans were, and are, self-amortizing over the term of the loan, but some have maturity dates of, say, ten years, leaving a substantial “balloon” amount still due.  The expectation has been that the unpaid amount would be refinanced (“rolled over”) into a new loan at that time.

The plan works just fine when credit is loose.  It doesn’t work so well when credit is tight.

That’s what befell General Growth Properties, which has just now filed in bankruptcy.  We understand that GG’s problem was particularly acute because it had relied heavily on short-term financing, probably more so than most shopping center development companies, when it purchased the Rouse Company and, in so doing, large tracts of undeveloped land.  GG found itself in a bind because short-term loans which it had historically rolled over without much problem became unavailable at all.

This is not to throw a pall over the properties themselves.  To a substantial extent, they are “marquee” shopping centers which are well-maintained and enjoy premier locations and competitiveness in their communities.  The problem is not the properties; we read that they generate sufficient cash to sustain themselves.  The problem is GG’s inability to refinance the principal of loans which are coming due.

So, the insurance companies and other lenders which had been unwilling or unable to roll over GG’s loans now find that “there may be a further delay,” like it or not.  Unquestionably, the centers will continue to operate.  The investment company which owns 25% of GG stock has agreed to supply substantial funds to GG as “debtor in possession” in the bankruptcy proceeding.

A worrisome part is that the “further delay” may adversely impact some of the same life insurance companies which have now made their appearance as supplicants on the bailout line.  This is not quite the same situation as a bank, with which a depositor or borrower has a financial relationship, and that’s all.  A life insurance policy is more in the nature of a fiduciary relationship.  There can hardly be a more trusting relationship than that between a policyholder and his life insurance company, where the outcome is certain and he trusts that, without fail, the policy will pay off upon his death and that his wife and children will be protected thereby.

Life insurance companies are regulated by the individual States, not by the Federal government.  Still, in light of the news that some life insurance companies (major ones included) have told Washington that they may be in need of bailout help, there is probably no way that the Federal government will be absent from the solution.  Many of the States, themselves, are in no position to help; and, after all, there is only one entity that has the power to create money out of thin air.

It is unthinkable that any life insurance company would be allowed to descend so far that it could not pay off on life policies upon the death of the insured party.  Still, the specter has arrived:  the bankruptcy of General Growth is the largest real estate bankruptcy filing, ever, and many life insurance companies and pension funds have really substantial amounts of money on the table.

I have generally good feelings about the eventual emergence of General Growth from the bankruptcy process.  The properties are good.  This is not a case of abandoned skeletons of half-built skyscrapers.  There had been too much short-term borrowing and not enough self-amortizing loans.  GG got caught in a credit squeeze not of its own making.

Quite apart from the question of return of capital, there may be “haircuts” and even some “shaves” administered to lenders in coming days.  It is yet to be seen to what extent those will materially adversely affect certain life insurance companies and pension funds.  It bears watching.

William Kurtz      April 17, 2009       http://www.candlesticksonsteroids.com

 

 

 

It is very essential for everybody to be practical and stay focused to succeed in life. Financial security being the main concern, we must try to work to strengthen it and do not depend on others. We should utilize our ability to judge quality for earning success. We should try to motivate our selves to do things that we have never have done before. Earning and saving is a part of our life. We all should think about the future and start saving and investing in any of the life insurance policy now. We should not delay or postpone the work which needs immediate attention. In fact we should also try to convince or suggest our friends and relatives also regarding the life insurance policy. Some situations might not follow the pattern we would have wanted. In such cases, it is necessary to find the details of all the various life insurance policies, before we come to any conclusion. We need to read all the fundamentals and the basic rules of the particular policy, and then we need to invest in any of them which will go easily according to our life style. There are several policies and schemes which we can take the advantages from. The only need is to invest very wisely and then pay the amount of the premiums mentioned in the policy accordingly without any stoppage. Some life insurance policies allow us to pay the amount of premiums quarterly, some are to be paid annually and some monthly. All depends upon the type of policy we have chosen. We can buy according to our own benefit. There is so such compulsion for us to buy only a particular policy. All the policies differ and also their coverage amounts differ. All the life insurance policies are excellent. We cannot compare one policy with another. There is a saying “little savings, little returns”, “bigger savings, bigger returns”. So we must choose according to our savings and then invest. The more we can save and invest, the more we will be benefited.

I can say that happiness is a way station between an individual and life insurance policy. Good investments are always like strings of pearl. Life insurance is such a good name that it keeps its brightness even in dark place. Who will help us when we have lost everything in our business? When everything goes wrong in our life it is none other than the life insurance company who catches our hand and helps us to lead a normal life again. They try to pull us out of the trauma we might face due to unconditional business loss or some other loss. Our friends or relatives might leave us alone during our critical time, but the life insurance company very well helps us to overcome all the difficulties in our life. So I feel that the life insurance company should be the best friend for everybody. After all a friend in need is a friend in deed.

Now days there are so many ways where we can save our earnings and invest for the future. The one and the foremost investment which I like is the life insurance policy. There are many types of life insurance policies where we can benefit through. They are the whole term life insurance policy, the mortgage policy, the health insurance policy, the universal life insurance policy and many more. Al the policies are extremely good and we can get many benefits from them if properly invested. We should understand the particular policy in which we have to invest and then invest in it. We can share and discuss the matter with our friends or our relatives who have already invested in it or the best way to understand the terms and conditions of the life insurance policy is to meet the agents and seek their advice to which policy to invest in. They will help you to take your decision very easily. Think twice before you invest and then proceed wisely.

Since years the life insurance companies are promising to serve the nation with their assistance and they have kept their word and they are consistently introducing more new policies for the benefits of the policy holders. They are really very reliable and they are of great help especially during the crucial time of the life when we may really need money. They take care of all the expenses when one needs it. If you have got a loss in your business, or if you have met with an accident and the hospital expenses will be taken care of and all the other possible expenses will be taken good care of by them. We should invest in the life insurance policy which we feel would be easy for us to handle and which will suit our budget. We should try that our present luxuries are not disturbed much. We will have to work a little harder today, but we can manage to earn today to save our future. Our children will benefit from the life insurance policies to a great extent. If anything will happen to us suddenly, then the life insurance company will take care of all the additional expenses which have to be taken care of. Our children may not have to compromise with their studies. The policy will take care of their educational expenses also.

I was 15 years old when I remember my cousin struggling for his studies. My uncle had expired due to an accident; my aunt was not able to handle the expenses after my uncle’s death. Everything was looking impossible for my aunt. There was no proper financial backing for them. Had my uncle invested in any of the life insurance policy, my aunt and my cousin had not struggle so much in their life. Anyhow they both worked very hard to survive and my cousin was able to finish his studies and as years passed he managed to have a proper life style. The first thing he did after he settled in his life was he bought a universal life insurance policy for himself and his family so that he would have to go through all those struggles in his life again.