MetLife Inc. has performed well as a real estate investor in recent years. And now the insurance giant is looking to build on that expertise by launching a third-party asset management business.
“We have an industry-leading platform … in the top quartile over the last couple years,” says Robert Merck, senior managing director for MetLife. “Now is the time to leverage that platform.”
The new business, MetLife Investment Management, will buy commercial real estate assets and manage them on behalf of institutional investors.
The move speaks the continued recovery in the market for commercial real estate properties and strong demand from institutional investors, who seem to be returning to real estate in a big way. “There is an interest from real estate investors in increasing allocations, especially for core real estate,” says Merck, who will head MetLife’s renamed real estate group, MetLife Real Estate Investors.
That high demand is because of the quality of core real estate investments, proven during the hard times of the Great Recession and the aftermath. “Good quality core [real estate] provides good returns and is a hedge against inflation,” says Merck.
The focus on core properties is a big difference compared to before the crash, when yields on core real estate were low compared to opportunistic and value-added investments. However, quality core real estate held out well in the downturn and continues to benefit from strong fundamentals. Aside from new multifamily development, there has been very little new construction, which has kept demand in line with supply even with slow job growth. Low interest rates have also helped to boost investment returns.
The new business will focus on creating "investment opportunities that can generate attractive, long-term returns for institutional investors,” according to MetLife. Clients will include insurance companies, public and private pension plans and sovereign wealth funds.
MetLife's asset management business will build on its expertise in private asset investment, including real estate equity, commercial mortgages and private placement debt. “Our extensive business platforms for originating commercial mortgages, investing in real estate equity and sourcing private placements are well established,” said Steven J. Goulart, executive vice president and chief investment officer of MetLife Inc., in a statement.
“The bottom line is that we have a recognized competence in investing in core real estate,” says Merck. He points to MetLife’s record of discipline as an investor. “We sold some large investments as the market peaked.” That record includes the sale of Stuyvesant Town and Peter Cooper Village in New York City at historically high prices near the peak.
MetLife entered the third-party asset management business after "an extensive study of market opportunities," according to the company.
"We have the talent, scale, reputation and in-market presence to acquire high quality assets with the potential to create strong returns," said Goulart. "We will leverage these strengths.”
MetLife has dedicated experienced staff to run the new business. “We have taken very senior people in the organization… one running debt and one running equity,” says Merck. “That’s says a lot about our commitment.” Mark Wilsmann, who has led MetLife’s commercial mortgage operation since 2003, will head the equity strategies group. Brian Casey, who previously headed up MetLife’s Washington, D.C., regional real estate office, will lead the debt strategies group.