A union-backed Washington insurance company said that it's preparing to make a bet on Baltimore by committing at least $21 million to an investment fund designed to spur commercial development in the Baltimore area and provide profits for union-linked pension funds.
Union Labor Life Insurance Co. said that it will use the money to make commercial mortgage loans in the retail, medical office, apartment and single-tenant office markets. The major catch, said Union Life Assistant Vice President Tim Durkin, is that the developers must use union labor.
Mr. Durkin said that making mortgage money available may ease the lack of construction financing.
For typical commercial projects, a bank issues a short-term construction loan. The construction loan is repaid when the project is finished with money from a longer-term mortgage loan, which often is underwritten by an insurance company or other non-bank institutional investor.
"In today's market, a commitment from a lender to issue a long-term mortgage can make it much easier to get construction financing," Mr. Durkin said. "A lot of lenders are backing off from the real estate market, but we continue to believe that there are a lot of good projects waiting to be built." He said that the company is looking for at least two to four investments in the Baltimore area.
He said that Union Labor Life would insist on heavy pre-leasing, rather than lending to speculative developers. Under pre-leasing agreements, a potential tenant is found before construction begins. "Our desire is not to take a great deal of leasing risk," he said. "It fits the changes in the real estate market."
Union Labor Life is a private insurance company whose stock ownership is restricted to labor unions affiliated with the AFL-CIO.