Slate enters US real estate debt market with $2.3bn Annaly deal

The Toronto-based alternative asset manager will now expand its product offerings stateside following the take-private transaction.

Slate Asset Management’s founding partner Blair Welch believes it is an “opportune time in the market cycle to be making strategic real estate investments.”

That opportunity materialized for the Europe- and North America-focused investment manager last month when it agreed to acquire the commercial real estate business of Annaly Capital Management, a US mortgage REIT. The transaction, expected to fully complete by Q3 2021, is valued at $2.33 billion.

As a firm that has traditionally focused on equity investments in real estate, Slate’s takeover of Annaly’s commercial real estate portfolio and team will add real estate debt to its product offerings. Annaly’s commercial property business includes equity interests, loan assets and commercial mortgage-backed securities. The firm has originated and invested in various commercial real estate debt strategies across property types, with retail comprising 31 percent of its total portfolio, followed by office at 29 percent, multifamily at 14 percent, hotels at 8 percent and industrial at 2 percent, according to its website.

Timothy Gallagher, head of commercial real estate, and Michael Quinn, head of commercial investments at Annaly, will both be joining Slate upon completion of the sale.

Talking to PERE about the transaction, Welch said Annaly’s management had made a strategic decision in 2020 to focus on the core part of its business – the residential mortgage finance market – and engaged an advisor to identify strategic alternatives for their commercial real estate business.

Prior to the takeover, Slate’s total assets under management in North America stood at $6.3 billion. However, aside from special situations investing in Canada, the firm did not have any debt exposure in the region.

The timing of the deal – and Slate’s expansion into real estate lending – is also strategic given the broader macroenvironment and lenders waiting for the covid-19-triggered market dislocation to spur more financing opportunities.

“Pre-covid there was an abundance of debt and platforms,” Welch said. “In our belief, however, over the next 12-24 months, there is going to be a requirement from good borrowers, sponsors and assets that will need creative, flexible capital solutions to emerge from the covid impact. It is a thinner market, but regardless of that, there will be borrowers and sponsors who require creative capital. We are well positioned to do that.”

Slate’s pro forma AUM for its global real estate business is $9.6 billion. Alongside North America, the firm also invests in Europe through funds and separate accounts. In October, it acquired two retail real estate portfolios, leased to grocery and other essential-use tenants, in Germany for €72 million in total. The investments were made on behalf of the Slate European Real Estate Fund III that closed in March 2020 with €250 million.