Two relatively small corners of real estate manager portfolios grew the most in the year ended June 30, reflecting a focus on sectors that could help investors insulate portfolios against a downturn.
While the sectors remain a relatively tiny slice of managers' total assets under management, farmland and real estate debt strategies all rose in the year ended June 30.
Real estate debt sectors tracked by Pensions & Investments include hybrid debt, mezzanine, loans and mortgages.
Worldwide mezzanine assets were up nearly 29% to about $16 billion; and mortgages were up 8% to $292 billion. Also, worldwide farmland assets grew by 10.2%, and worldwide timber assets were up 1.3% to $31.8 billion. U.S. institutional tax-exempt investments for farmland was up 11.1%.
Mezzanine assets managed for U.S. tax-exempt institutional investors were up 31.4% to $6.2 billion; loans were up 19.7% to $1.7 billion and mortgages grew by 7.2% to $65.5 billion.
Nuveen, formerly TIAA Global Asset Management, topped the list of mezzanine managers for U.S. tax-exempt clients $3.1 billion, a 56% increase. Brookfield Asset Management was up 26% to $687 million and PGIM, the asset management arm of Prudential Financial Inc., was up 108% to $594 million.
Loan assets were also up, in part due to the addition of Aviva Investors, which manages $11.4 billion in worldwide loan assets. Aviva did not participate in last year's survey.
Madison Realty Capital headed the list of loan managers with $857 million. Madison did not complete a survey last year. UBS Asset Management Real Estate & Private Markets was second, with assets down 37% to $604 million, and Nuveen was in the third spot with loan assets dipping 14% to $122 million.
Nuveen led institutional tax-exempt institutional mortgages, with assets up 23% to $26.3 billion. PGIM was next, with assets down 1.5% to $15.9 billion. New York Life Investment Management was third with a 3.3% increase to $3.6 billion.
"We continue to see broad interest in commercial mortgages across the risk spectrum from our clients, from senior whole loans through higher-yielding subordinate debt," said Jack Gay, Nuveen's managing director and global head of commercial real estate debt. "Mortgages continue to offer strong relative value as compared to fixed-income alternatives and are an attractive supplement to equity investments, particularly as we move through later stages of the real estate cycle."
At the same time, Nuveen's investments in mortgages increased due to "a strong pipeline" of opportunities during the survey period, he said.
Nuveen is also increasingly investing in mezzanine and subordinated debt, Mr. Gay said. "Over the past few years we have increased our subordinate debt (B-note and mezzanine) activity, where we're lending higher in the capital stack, and in some cases taking transitional asset risk to achieve equity-like returns," he said.
The amount of capital focused on real estate lending is also increasing. "The lending market continues to exhibit an abundance of capital across the risk spectrum," Mr. Gay said.
Non-bank lenders including real estate credit managers and insurance companies are stepping into the breach left by commercial banks and commercial mortgage-backed securities issuers with regulatory lending restrictions, Mr. Gay said.
The lending market continues to exhibit an abundance of capital across the risk spectrum, he said.
"As a lender, we expect to do business throughout the capital stack through our core, mezzanine and floating rate transitional bridge programs as we continue to see our clients increasing allocations to debt," Mr. Gay said.