The US is no stranger to large domestic insurance companies becoming major players in the management of private real estate funds for third-party institutions. Now, it seems one more name is about to be added.
MetLife, the New York-based insurance giant that boast 90 million customers and whose advertising slogan ‘The Light That Never Fails’ is inspired by the beacon atop the landmark MetLife tower, announced its intention to enter the real estate asset management and placement business last month. In doing so, it enters an arena with a particularly strong and established competitor already.
Prudential Real Estate Investors, part of Prudential Financial, has been investing on behalf of institutional clients for 42 years, when it launched the first open-ended real estate fund in the US. In private placements, it goes back to 1977, when it launched PRIVEST to lend to private and public companies on behalf of investors.
AIG, meanwhile, presents another example, albeit a messy one. Prior to the credit crunch, it managed some of the largest private equity real estate funds raised, only to retrench following its financial bailout. More recently, it announced it would step up real estate investing again, although with no immediate plans for third-party funds.
In Europe, there also are obvious examples. Aviva Investors, Legal & General and Prudential (not to be confused with Prudential Financial of the US) have well-formed real estate investment management arms run out of Britain. AXA of France is another case.
While MetLife may be a newcomer, it is not necessarily any smaller than the competition in terms of activity in real estate and indeed global reach. It already manages some $43 billion of commercial mortgages and $10 billion of direct real estate investments for its general account, which helps to meet liabilities and deliver returns for those it provides insurance products.
As the volume of real estate loans suggests – $43 billion – most real estate professionals associate MetLife with the origination of commercial property loans. In 2011, it lent $11 billion, thus setting a company record. Only Wells Fargo lent more last year.
That lending muscle also has been witnessed in London, where it has offices. MetLife originated around $800 million of commercial real estate loans in Europe in 2011. It also lent $600 million in Mexico and $453.5 million in Japan, underlining its existing global reach.
On the direct investment side, there have been some singularly spectacular deals as well. In October 2006, for example, MetLife sold Stuyvesant Town and Peter Cooper Village in New York for $5.4 billion to a joint venture between Tishman Speyer and the real estate arm of BlackRock. Tishman and BlackRock subsequently handed back the keys on the property in January 2010, when the pair missed a $16 million mortgage payment. MetLife, meanwhile, used the proceeds to help diversify its real estate portfolio.
MetLife's chief investment officer, Steven Goulart, explained that the new strategy to launch an asset management and private placement business was about using its global scale and “organizational expertise.” In addition, he added: “Asset management is a capital-efficient business, with attractive returns on equity. The current strong demand for hard assets and high-quality, fixed-income assets among institutional investors makes this an attractive time for market entry.”
Goulart further explained: “Our third-party asset management business primarily will focus on the US for both debt and equity and the UK and Europe initially for debt only.”
The Merck factor
Robert Merck, senior managing director and head of real estate and agricultural investment, will run the newly created MetLife Real Estate Investors. He already is a well-known figure in real estate, having been at the centre of the Stuyvesant Town deal.
Merck obviously is regarded as a safe pair of hands to lead a new business. Having joined the firm in 1982, he has now spent a total of 30 years at MetLife. In a recent interview, he put this loyalty partly down to ‘genetics,’ as his father spent three decades with a single company as well.
According to the interview, Merck got the taste for real estate when he enrolled for what was then the only real estate programme at Emory University in Atlanta. Subsequently, he discovered how MetLife was adding to its real estate team and was accepted.
Some 30 years later, MetLife will again recruit for it new business area. The insurer employs around 100 people in its real estate department, but it will seek to bolster the ranks with hires in areas such as marketing. That said, it largely will rely on its in-house capacity.
MetLife is not ready just yet to reveal any details of forthcoming products for third-party institutions. Instead, it said it continued to “entertain options” for carrying out its strategy. In the meantime, its insurance competitors are left to muse whether this is indeed a ‘Light That Never Fails’ or one that only flickers.