LGIM moves into US real estate equity ahead of expected pricing correction

The London-based asset manager has hired Alexia Gottschalch from Aegon to lead the new platform.

Legal & General Investment Management – the investment arm of European insurance and pension services company Legal & General – last week launched a US real estate equity business with the aim of tapping into what could be a wave of investment opportunities.

The firm hopes to step in at a time when the global market continues to wrestle with volatility driven by rising rates and uncertainty. Many US markets have begun to correct in terms of pricing, which will create good buying opportunities for the new platform, Bill Hughes, global head of real assets at LGIM, told PERE.

“We think entering the market in a material way in 2023 is great timing,” Hughes said. “We will find some sellers of assets based on open-ended fund activity or refinance positions and a whole range of reluctant owners of real estate where values have been diminishing.”

LGIM will initially use internal capital from its balance sheet to make investments before looking to raise third party capital from as early as 2024, Hughes said. He noted it was too early to say what those products will look like but said they could target both retail and institutional capital from US and international investors.

“Right now, we’re concentrated on building teams and investment performance credibility,” Hughes said.

The platform will be headed by Alexia Gottschalch, who was hired from her role as managing director and US head of equity for Aegon Asset Management’s real assets platform. Gottschalch will report to Hughes. Tim Watson, who also comes over from Aegon AM, will serve as head of investment and portfolio management and report to Gottschalch, Hughes said.

In terms of investments, LGIM has already made its first via a joint venture with developer Ancora, which is based in Durham, North Carolina. The 50/50 partnership announced in October 2022 is looking to deliver a pipeline of $4 billion’s worth of planned development and acquisitions. Hughes said the partnership should serve as a “blueprint” for how the manager plans to form strategic partnerships in order to deploy capital in its initial phase.

“It’s quite likely that in the early stages we’ll be looking to find strategic partnerships where we can accelerate progress rather than be entirely organic in all that we do,” he said.

Beyond life sciences, the platform will target investments in multifamily and industrial. Not burdened by legacy assets, the firm will use the platform to make investments in sectors where the supply and demand is most favorable, Hughes said.

Taking a more thematic approach, the firm also wants to lean on successful strategies it has employed in the UK market. This includes its focus on the environmental impact of its buildings, and a US sustainability properties fund, which aims to transition assets to net zero by 2030.

Another area of focus for US investments will be the concept of urban regeneration. Focusing on the S of ESG, Hughes said the firm thinks about the impact of its investments in terms of “what works for society.” An example of this is an initiative across the manager’s build-to-rent portfolio in which LGIM runs community engagement programs, hosts a local business market pop-up and each asset supports a local homelessness charity. Hughes said the firm will look to institute similar thinking to US investments.

LGIM launched its first US investment arm in 2017, initially focusing on private debt. Real estate is the second asset class to get a US arm.