Updated with correction
Insurance companies continue to charge into real estate, especially joint ventures.
Insurers pumped more than $7.7 billion into commercial real estate in the year ended Dec. 31. The biggest annual jump occurred between 2011 and 2012, when insurers' real estate investments more than doubled to $6.7 billion from $3.3 billion.
Insurance companies had $42.7 billion invested in joint ventures as of Dec. 31, 2013, the latest data available, up from $29.2 billion in joint ventures, partnerships and limited liability companies as of Dec. 31, 2011, according to the Capital Markets Special Reports of the National Association of Insurance Commissioners and the Center for Insurance Policy and Research.
Insurance companies are no strangers to real estate, but the financial crisis caused many to pull back and reassess their strategies. Now, they are entering into joint ventures alongside operators and other institutional investors as good deals have been harder to find.
Just after the recession, real estate investment executives at The Allstate Corp., Northbrook, Ill., aimed to invest in what they saw as low-hanging fruit through a combination of commingled funds, direct investments and partnerships, said Michael Moran, managing director and vice president, who heads Allstate's real estate group.
Today, real estate investment opportunities are less abundant and harder to find, so Allstate has shifted to more highly structured joint ventures and co-investments to find value, Mr. Moran said.
Others — including TIAA-CREF, a money manager and life insurer, and The Guardian Life Insurance Co. of America, both in New York — are investing as the general partner, reaping a portion of the fee income generated as well as the returns.
Some insurers are making direct investments in real estate.
In February, Chinese insurer Anbang Insurance Group Co. Ltd., Beijing, bought the New York Waldorf Astoria from Hilton Worldwide Holdings for $1.95 billion, as well as the office space portion of a roughly 350,000-square-foot tower at 717 Fifth Ave. in Manhattan from The Blackstone Group.
In 2013, Ping An Insurance Co. of China Ltd., Shenzhen, paid $388 million for the Lloyd's of London headquarters.
Such activity probably will increase this year, said Reid McGlamery, executive vice president in the Los Angeles office of real estate money manager Jones Lang LaSalle Inc.
TIAA-CREF is typical of companies with large insurance businesses that invest for their general account and have established money management businesses in which they invest on behalf of other asset owners.
TIAA-CREF has about $9 billion in its general account invested in real estate. The firm has $7.6 billion in joint ventures, said Martha Peyton, managing director and head of research and strategy, global real estate in TIAA-CREF's asset management business.
For example, TIAA-CREF has a number of joint ventures with Norges Bank Investment Management, which manages the $870 billion Oslo-based Government Pension Fund.
“There's been a sea change that occurred post-recession and we see more money going into joint ventures with our institutional partners and clients,” said Suzan Amato, managing director, managed accounts and joint ventures, TIAA-CREF global real estate. “We at TIAA made a deliberate effort to create investment portfolios where we are the lead investor. We have done quite a lot of that, particularly in 2014.”
TIAA-CREF invested $2.7 billion in joint ventures with institutional investors last year.
TIAA-CREF also makes commercial real estate loans — many alongside other insurance companies — with a loan portfolio valued at more than $15.6 billion, Ms. Amato said.
Joint ventures — both equity investments and loans — are a way for TIAA-CREF to diversify risk. TIAA-CREF has made a number of joint venture acquisitions alongside established real estate investment trust operators such as Simon Property Group Inc. and Westfield Corp., Ms. Amato said.
This insurance company push into joint ventures and direct real estate investment is a worldwide phenomenon, which stems from insurers greatly increasing their overall real estate investments, noted Jeremy Plummer, London-based CEO of CBRE Global Investors' global investment partners business.
Insurance companies have grown to be a significant client group for CBRE. Some $11.9 billion of its $90.6 billion in global real estate assets under management is managed on behalf of insurance companies, up from “very little” five years, Mr. Plummer said.
Low bond market yields have been tough on insurance companies, which normally hold huge portfolios of bonds, he said. “Generally, insurance companies' appetite are skewed toward less volatility, more secure, long-term, long-duration cash flows, with low levels of leverage or zero leverage,” he said.
Very large major shopping centers have those characteristics, which leads insurance companies into joint ventures to diversify the amount of capital invested in a single deal, he said.
Last month, AXA Real Estate Investment Managers — on behalf of 10 insurance companies of parent company AXA Equitable Financial Services LLC — created a joint venture with property manager Eurocommercial Properties N.V., Amsterdam. Eurocommercial bought a 50% stake in a e43.3 million ($47.89 million) shopping center in France that AXA had wholly owned.
Peter Martenson, partner and head of global distribution in the San Diego office of placement agent Eaton Partners LLC, said insurers “are taking lessons learned from the last decade to 15 years and going back to basics, back into doing joint ventures and pushing for separately managed accounts,” he said. “They are concentrating investments .... and getting closer to the assets.”
“I think it will increase even more,” Mr. Martenson said.
Some insurance companies are starting to invest in real estate money managers, reaping fees and returns as part of the general partner, as well as investing alongside other asset owners as part of the limited partnership.
In January, Los Angeles-based real estate money management firm TruAmerica Multifamily acquired a 14-property multifamily portfolio for $482 million for a syndicate of domestic and international insurance companies including Guardian Life and Allstate. TruAmerica was founded in 2013 as joint venture between Robert Hart, TruAmerica's CEO, and Guardian Life.
Guardian Life owns 80% of TruAmerica, which was formed to make value-added investments in multifamily real estate, he said.
“We see more and more where insurance companies have a piece of the general partnership side, where before they were on the passive side.”