Allstate Investments has altered its real estate investing strategies while also becoming net sellers of properties, bringing the size of its real estate portfolio down to $3.5 billion from $4 billion, said Edgar B. Alvarado, group head, real estate equity for the manager’s $85 billion insurance company portfolio, who spoke at the Urban Land Institute conference at the Javits Center in New York on Wednesday.
Mr. Alvarado spoke on a panel moderated by David Karson, executive managing director, capital markets, of real estate brokerage firm Cushman & Wakefield. Also speaking on the panel were Paul J. Doocy, chief investment officer and managing director, investment management, of real estate money manager Real Estate Capital Partners; and George Rizk, partner of hedge fund The Baupost Group.
Since the 2008 financial crisis, Allstate changed its strategy, investing directly in real estate through joint ventures, co-investments and separate accounts, Mr. Alvarado said. The reasons are to gain control over investments that they cannot get investing in commingled funds and to lower fees.
By year-end, Allstate will have acquired $1 billion of multifamily properties, with much of it fixer-upper apartments, so-called Class B multifamily properties, such as workforce housing on the West Coast. The plan is to upgrade the properties, raise the rents a bit, but still keep the rents cheaper than in Class A apartments, and add leverage. Allstate does not typically add a mortgage of more than 50% of a property’s value, he said.
Overall, though, Allstate has been selling more than it is buying.
These days, Allstate is looking to invest in multifamily properties on the East Coast, industrial and retail.
When asked whether they bought single-family homes for rent, none of the speakers had made those investments.
Mr. Karson said the strategy would work only if the “houses are really, really cheap,” or at least cheap enough to suffer the costs of operating a portfolio of single-family homes.
“Blackstone (Group) will make a ton of money on it,” Mr. Karson said.
Allstate had some exposure to single-family homes through its fund investments but did not invest directly in single-family homes because Allstate executives did not feel the investment was “institutional enough,” Mr. Alvarado said.
Mr. Doocy said his firm saw the investment as a short-term investment riddled with risks such as how to exit the investment.
“Others have been successful,” Mr. Doocy said. “(Adding) leverage has changed the return profile for the better. Others in the business think it’s the best thing since sliced bread.”