Allstate Investments is eyeing a major expansion of its direct real estate investment activities over the coming years, with expectations that it will substantially increase the amount of money deployed to direct investing, co-investments and joint ventures.
The real estate equity investment arm of the US insurance group is in the process of growing its portfolio to about $4 billion to $5 billion in value, with plans to invest roughly $300 million to $400 million in global and distressed fund strategies and a further $700 million in direct investments in 2012 alone. Allstate is expected to deploy similar levels of equity each year over the next couple of years.
Edgar Alvarado, head of the real estate equity group, told the PERE Global Investor Forum that there would be a much greater focus on direct investments in the future, with expectations that the insurance group could grow that portion of its portfolio to between $2 billion and $2.5 billion.
Allstate’s direct drive already has resulted in co-investments with existing fund managers, such as on The Blackstone Group’s $9.4 billion acquisition of Centro Property Group’s US assets, as well as joint ventures with new and existing managers.
Earlier this year, the group announced joint ventures with Lowe Enterprises Investors and Amli Residential targeting the hospitality and multifamily sectors, respectively. Alvarado, who will be speaking at the PERE Global Investor Forum in Los Angeles on April 24 and 25, said a joint venture focused on the office sector would be announced in the coming weeks.
“2011 has been a very big year for us and we’ve put a lot of money to work across various strategies globally,” Alvarado said, adding that the joint venture platform – a new initiative for Allstate – was getting “good traction” in the market, as well as internally.
The move towards greater direct investing was by no means an overnight transformation for Allstate, Alvarado stressed. Indeed, he said the team had been laying the ground work for such a move for almost three years.
“You have to lay the ground work, particularly within a large organization,” Alvarado said. “It takes a long time as you not only need to flesh out your own investment concepts but you need to work on the accounting, the reporting and the risk management, as well as align senior management to support such a long-term strategy. We started working on this two-and-a-half years ago and are only now putting money to work.”
Some of the world’s largest institutional investors increasingly are turning to direct investing – particularly through co-investments and joint ventures – as they seek to take greater control over their investments. Alvarado accepted that direct investing required “more [resources] rather than less,” but he said the benefits are worth it.
“You get more control over the assets, more influence at the asset level in terms of strategy execution and are much more involved in the operational side of the assets, rather than being a passive LP along for the ride,” Alvarado said.
Allstate will continue investing in commingled funds in the future, although these will be restricted to expanding its global exposure, targeting distressed opportunities and selective re-ups with existing fund managers.
One of the group’s latest fund deals, led by Allstate portfolio manager Joy Winterfield, was acting as a seed investor in CBRE Global Investor’s $250 million Asia Alpha Plus Fund II. Working closely with CBRE prior to the fund’s launch, Winterfield and her team underwrote the deals simultaneously to building the pre-seeded portfolio and worked closely with CBRE on fund terms and structure.
“We’re not a global organization so it’s very effective for us to have non-US exposure, and we will do that through fund vehicles over the next few years, especially in emerging markets,” Alvarado said. Fund vehicles such as the CBRE Asia Alpha Plus vehicle provide Allstate with “market intelligence and access to people on the ground” in Asia that will enable them to build exposure – and direct fund and co-investment opportunities – over time, he added.