HARTFORD, Conn. - Add Massachusetts Mutual Life Insurance Co. to the camp of insurance companies that want to be in the real estate advisory business.
Through its wholly owned property subsidiary, Cornerstone Real Estate Advisors Inc., the Springfield, Mass. insurer made its debut as a real estate money manager in the late spring when it closed a $330 million closed-end limited partnership that owns a diversified portfolio of suburban office buildings, according to David Reilly, Cornerstone executive vice president.
The fund - named Cornerstone Suburban Office L.P. - was seeded with properties from Massachusetts Mutual's general account property portfolio. Massachusetts Mutual retains a 48% stake in the fund, worth about $180 million when the deal closed.
Plans afoot for a second fund
Plans already are under way for a second fund that will focus on full-service hotels. It, too, will be seeded from the insurer's general account, and Massachusetts Mutual will retain a financial stake in the fund, said Mr. Reilly.
Investors in the first fund have said they are interested in the second one, he said.
Representatives from the $2.1 billion Deseret Mutual Benefit Administration, Salt Lake City, the $10 billion Howard Hughes Medical Institute, Chevy Chase, Md., and the $9.5 billion endowment for Harvard University, Cambridge, Mass., confirmed they are among the five investors in the fund.
Other investors in the partnership are taxable institutions, said Mr. Reilly.
The deal was put together by Chadwick, Saylor & Co. Inc., a Los Angeles-based real estate investment bank that has carved a niche in portfolio deals involving tax-exempt investors.
19 properties in portfolio
The Cornerstone portfolio has 19 properties in 13 suburban markets with an overall occupancy rate of 95%. Returns have ranged between 12% and 15%, said Mr. Reilly.
The fund is structured as a seven-year partnership with extension features depending on what the partners want to do.
Investors also committed an additional $130 million to buy more suburban offices, said Mr. Reilly.
Howard Hughes' Mark Barnard, manager of private investments for the foundation, said the deal was attractive because it was a specified portfolio; Cornerstone had a history with the buildings; and the structure, which Mr. Barnard termed a club investment, "allows a dialogue on the (funds') operations."
A club investment, said Mr. Reilly, allows a group of sophisticated investors through regular meetings to make decisions effecting the investments, rather than leaving the decisions solely to the general partner.
"Cornerstone's intent is to align interests as closely as possible," said Mr. Reilly.
"As a result, we are encouraging the partners to be actively involved in the major decisions of the partnership."
Some are attracted
Kirk Black, real estate officer with Deseret Mutual, the pension fund for the Mormon Church, said the deal was attractive because it was "priced to take advantage of upside."
Cornerstone's entry into the real estate money manager business occurs at time when insurance companies are reassessing their involvement in property. Historically a force in real estate money management, the industry has split into two camps: those that want to be in the real estate advisory business, and those that want out.
But others are not
The most notable to leave the business are Aetna Inc., which last year sold its real estate unit to the management, and Equitable Life Assurance Society of the United States, which earlier this year sold its real estate money management unit to Lend Lease Corp.
Those two followed Travelers Insurance Co. Inc. and John Hancock Mutual Life Insurance Co., both of which left the business in the early 1990s.
Those that have remained in the business have altered the manner in which they do business, most notably the Metropolitan Life Insurance Co. and The Prudential Insurance Co. of America.
Met Life consolidated its Metric Realty and Met Life Realty Group Inc. subsidiaries into one unit, San Francisco-based SSR Realty Advisors Inc., and is committed to private equity investing for clients.
Prudential restructured Prudential Real Estate Investors, and in the process, embraced the public real estate market as a potential source of deals and as an exit strategy.
Massachusetts Mutual through its Cornerstone subsidiary will continue to buy properties for its own account with the intent of seeding partnerships and then soliciting co-investment partners, said Mr. Reilly.
"The intent is to continue to grow that strategy," he said.
"We also want to grow relationships with outside investors as co-investors."
