![\"The](\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2017\/09\/The-takeaway.jpg\")
<\/a>Life insurance companies, long active in commercial real estate investment, have been stepping up their involvement. While their presence on the debt side far outweighs their equity plays\u2014with $41.5 billion worth of owned commercial real estate properties at the end of 2015 and $396 billion in mortgage loans, according to the National Association of Insurance Commissioners\u2019 Capital Markets Bureau\u2014they have been putting more equity into property deals. Their asset ownership jumped 41.1 percent from 2014 to 2015, far outpacing the average 3.2 percent annual increase over the decade between 2005 and 2015, according to the American Council of Life Insurers\u2019 most recent data.<\/p>\n\u201cWe have the capability within our life company portfolio to really play at all levels: core, core-plus, value-add and even development on a select basis, as well. We\u2019re really driven by risk-adjusted return as opposed to income yield, although income yield certainly is important for life companies,\u201d observed Mark Talgo, senior managing director at New York Life Real Estate Investors.<\/p>\n
Meanwhile, their investment in mortgages grew at a 7 percent net rate in 2016, according to Fitch Ratings U.S. Life Insurers\u2019 Mortgage Update report, published in June 2017. And three quarters of insurance company-originated loans were concentrated in commercial mortgages.<\/p>\n
Equity plays<\/h2>\n![\"Walker](\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2017\/09\/WD_Views-At-Coolray-Field.jpg\")
<\/a>Walker & Dunlop employed one of its many life insurance company relationships to secure a $23 million bridge loan on behalf of Starlight U.S. Multifamily Core Fund for The Views at Coolray Field. The Class A multifamily property overlooks Lawrenceville, Ga.\u2019s Coolray Field, home to the Gwinnett Braves. Photo courtesy of Walker & Dunlop<\/p><\/div>\n
Like other investors, life companies reduced their investment activity earlier in the year as they waited for a clear view of the Trump Administration\u2019s plans, but their enthusiasm has since picked up. \u201cCapital flows overall are still strong and consistent,\u201d said Jim Cope, executive vice president & managing director of Walker & Dunlop\u2019s Capital Markets Group. \u201cI think everybody\u2019s back in and certainly re-entered fully in the second quarter, and that continues today, and we expect it to continue through the end of the year.\u201d<\/p>\n
\u201cAnecdotally in the market, I hear a lot of noise that the second half of the year should be more robust than the first half, I think in part as a result of lesser activity and maybe a bit more comfort around what\u2019s going on with the economy,\u201d added Paige Hood, chief investment officer & senior portfolio manager at PGIM Real Estate Finance.<\/p>\n
Multifamily and industrial are favored property types these days. \u201cWe\u2019ve always been big proponents of industrial assets and multifamily assets, because they tend to be less capital-intensive and less volatile, in addition to all the secular changes and demographic changes that are driving long-term performance for those property sectors,\u201d Talgo explained. \u201cFrom an institutional perspective, we have that long-term bias to strategically grow the portfolio in those two sectors, and really look at two other sectors, retail and office, more on a tactical basis based upon the volatility of those property types.\u201d<\/p>\n
Talgo cited fundamental shifts like the slowing growth of the working-age population and the increasing feasibility of working remotely as reasons for hesitation regarding the office sector. \u201cIf you don\u2019t have the growth in your working-age population, that\u2019s going to slow demand for office,\u201d he explained. \u201cSo it becomes very important in terms of how you go about selecting which office markets and which office product you want to be in.\u201d<\/p>\n
Insurers like New York Life have made it clear they will loosen their purse strings for trophy assets in top locations, which continue to deliver attractive returns despite concerns about asset class climate.<\/p>\n
In June 2017, the company acquired 2300 Empire, a multi-tenant office asset in Burbank, Calif. The top-performing Los Angeles submarket is home to six major entertainment studios, and its office market is flourishing in light of recent growth driven by the transformation of the media and technology industries. The property\u2019s large footprint lends itself well to media and entertainment tenants, and the confluence with its location in the epicenter of the entertainment industry\u2019s largest office market sealed the deal.<\/p>\n
According to Talgo, New York Life is not one to pick and choose deals based only on long-term performance, though that is a prominent factor for any investor.<\/p>\n
\u201cWe\u2019ll certainly take risk,\u201d he said, identifying 70 percent of the company\u2019s equity portfolio as core or core-plus assets, \u201cwhile the other 30 percent are products that might have a little bit more risk, where we think with our capability we can acquire those assets with risk, fix them up and essentially buy and create a core product out of that. That\u2019s going to drive some nice long-term income growth and appreciation. \u2026 We\u2019re really driven by risk-adjusted return as opposed to income yield, although income yield certainly is important for life companies.\u201d<\/p>\n
Debt delivers<\/h2>\n
<\/a>Walker & Dunlop employed one of its many life insurance company relationships to secure a $23 million bridge loan on behalf of Starlight U.S. Multifamily Core Fund for The Views at Coolray Field. The Class A multifamily property overlooks Lawrenceville, Ga.\u2019s Coolray Field, home to the Gwinnett Braves. Photo courtesy of Walker & Dunlop<\/p><\/div>\n
Like other investors, life companies reduced their investment activity earlier in the year as they waited for a clear view of the Trump Administration\u2019s plans, but their enthusiasm has since picked up. \u201cCapital flows overall are still strong and consistent,\u201d said Jim Cope, executive vice president & managing director of Walker & Dunlop\u2019s Capital Markets Group. \u201cI think everybody\u2019s back in and certainly re-entered fully in the second quarter, and that continues today, and we expect it to continue through the end of the year.\u201d<\/p>\n
\u201cAnecdotally in the market, I hear a lot of noise that the second half of the year should be more robust than the first half, I think in part as a result of lesser activity and maybe a bit more comfort around what\u2019s going on with the economy,\u201d added Paige Hood, chief investment officer & senior portfolio manager at PGIM Real Estate Finance.<\/p>\n
Multifamily and industrial are favored property types these days. \u201cWe\u2019ve always been big proponents of industrial assets and multifamily assets, because they tend to be less capital-intensive and less volatile, in addition to all the secular changes and demographic changes that are driving long-term performance for those property sectors,\u201d Talgo explained. \u201cFrom an institutional perspective, we have that long-term bias to strategically grow the portfolio in those two sectors, and really look at two other sectors, retail and office, more on a tactical basis based upon the volatility of those property types.\u201d<\/p>\n
Talgo cited fundamental shifts like the slowing growth of the working-age population and the increasing feasibility of working remotely as reasons for hesitation regarding the office sector. \u201cIf you don\u2019t have the growth in your working-age population, that\u2019s going to slow demand for office,\u201d he explained. \u201cSo it becomes very important in terms of how you go about selecting which office markets and which office product you want to be in.\u201d<\/p>\n
Insurers like New York Life have made it clear they will loosen their purse strings for trophy assets in top locations, which continue to deliver attractive returns despite concerns about asset class climate.<\/p>\n
In June 2017, the company acquired 2300 Empire, a multi-tenant office asset in Burbank, Calif. The top-performing Los Angeles submarket is home to six major entertainment studios, and its office market is flourishing in light of recent growth driven by the transformation of the media and technology industries. The property\u2019s large footprint lends itself well to media and entertainment tenants, and the confluence with its location in the epicenter of the entertainment industry\u2019s largest office market sealed the deal.<\/p>\n
According to Talgo, New York Life is not one to pick and choose deals based only on long-term performance, though that is a prominent factor for any investor.<\/p>\n
\u201cWe\u2019ll certainly take risk,\u201d he said, identifying 70 percent of the company\u2019s equity portfolio as core or core-plus assets, \u201cwhile the other 30 percent are products that might have a little bit more risk, where we think with our capability we can acquire those assets with risk, fix them up and essentially buy and create a core product out of that. That\u2019s going to drive some nice long-term income growth and appreciation. \u2026 We\u2019re really driven by risk-adjusted return as opposed to income yield, although income yield certainly is important for life companies.\u201d<\/p>\n