May 22, 2017

COMMERCIAL MORTGAGE ALERT, May 19, 2017:  The team behind the Giliberto-Levy Commercial Mortgage Performance Index is rolling out a new measure of returns on high-yield commercial mortgages.

Mortgage banker John Levy and investment manager Michael Giliberto have begun producing a tool for gauging and comparing investment returns on mezzanine loans and other subordinate debt, including preferred equity and B-notes, along with high-yield senior mortgages.

“I can say categorically that this is the first index of its kind,” said Levy, who runs John B. Levy & Co., a brokerage and advisory shop in Richmond, Va. “And I know why no one else has done it — because it’s so very hard to do. Mezz debt is usually part of a larger financing package, and there are a lot of variables. So our index has a lot of moving parts — far more than anything else we do.”

Levy and Giliberto have for 22 years produced an index that measures the performance of senior commercial mortgages. It tracks fixed-rate loans held by institutional investors such as insurance companies and pension funds, with data going back to 1972. Returns are updated quarterly. Subscribers can break down the data in a variety of ways, including loan duration, rate, loan-to-value ratio, interest-only periods, property type and location.

For the mezzanine index, dubbed G-L2, the partners have assembled a group of loan investors they call “founders” who both contribute information on their investments and have broad access to the index data. So far the index has data on some $8 billion of debt, representing more than 200 positions of $15 million and up. The loans are concentrated in the office and multi-family sectors, and most were originated in the past five years.

The loans have an average expected return of about 12%, Levy said. He noted there is considerable variation among the positions, which represent loan-to-value ratios of 50-60% at the low end to as high as 85%. The results will be updated quarterly, as they are for the senior-loan index.

Levy said he hopes to bring in additional founders, and noted that there is a broader potential audience for the mezzanine index than for the senior-loan product, now referred to as G-L1.

“The institutional lenders are interested, but so are the debt funds and the investment managers,” Levy said. “The demand for this data is more broadly dispersed throughout the market.” 