Allstate to target entity-level RE investments

The Northbrook, Illinois-based insurer plans to expand its direct real estate investment initiative to pursue opportunities in operating platforms. 

As it takes its direct investment drive to the next level, Allstate Investments is shifting its focus from real estate assets to the operating companies behind those properties.

Investing in properties no longer generates the returns that meet Allstate’s targets, said Edgar Alvarado, group head of real estate equity at Allstate Investments, in an interview with PERE. “What I told my team is, the day of the asset play is over,” he said. “If you go after an asset in the market, call it a multifamily complex or an office building, 95 percent of the time it’s going to be an auction and you’re just going to be highest bidder. I don’t feel that’s the right way to make money anymore.” 

Given the less-attractive returns associated with property-level investments, Allstate’s real estate equity investment arm instead is pursuing other opportunities. One major initiative is making private equity-like investments in operating platforms, where Allstate can provide capital to help grow the business. With entity-level investments, returns are generated from both the business’ real estate assets, which in some cases are in the single digits, and the platform itself, where the investor participates in both the promote and management of the enterprise.

In fact, Allstate recently made its first entity-level investment in TruAmerica Multifamily, a Los Angeles-based investment firm focused on the multifamily housing sector in the western US. TruAmerica, a partnership that was founded last year by The Guardian Life Insurance Company and industry veteran Bob Hart, was part of a group that along with Allstate recently acquired a 1,514-unit apartment portfolio in Colorado and Washington for $224 million.

Alvarado considers real estate operating companies to be the next phase of Allstate’s direct real estate investment drive, which it launched in 2010, and an opportunity that the insurer will be pursuing for at least the next three years. However, Allstate has not designated a specific allocation toward the strategy, which instead will be executed on a deal-by-deal basis.

Allstate would be the latest institutional investor to allocate capital to real estate operating platforms. One institution that is considered a pioneer in the space is the Washington State Investment Board, which has made the ownership of controlling interests in private real estate operating companies its principal strategy since 1997. Among the handful of other investors that have made operating platform investments are the Teacher Retirement System of Texas, which formed Akard Street Partners with Hunt Realty Investments in 2009 to invest in companies that include Cypress Equities and TriLyn Investment Management.

Allstate’s real estate equity group is one of two divisions under the insurer’s larger real estate investment group, which also invests in commercial mortgages. As of December, that group managed $9 billion of assets on behalf of Allstate’s pension plan and various insurance and financial products. 

For more details, read the full story in the July/August 2014 issue of PERE.