Bloomberg News

MetLife Targets New York to L.A. Apartments as Lending Rises (1)

March 06, 2014

Apartment Buildings on New York's Upper East Side

MetLife Inc. is looking to increase investments in apartment buildings in U.S. cities such as New York and Los Angeles as young professionals fuel demand. Photographer: Victor J. Blue/Bloomberg

MetLife Inc. (MET:US) is looking to increase investments in apartment buildings in U.S. cities such as New York and Los Angeles as young professionals fuel demand.

“We would love to do more multifamily and we’ve been very active,” Robert Merck, the head of the MetLife Real Estate Investors unit, said in a phone interview yesterday. “The demographics look good going forward for multifamily.”

MetLife, the largest U.S. life insurer, is turning to real estate to bolster profit (MET:US) and support long-term obligations amid low bond yields. Apartment demand is climbing, with fewer Americans owning their homes more than six years after a housing slump contributed to the longest and deepest recession since the Great Depression.

The firm boosted lending for commercial real estate 19 percent last year to a record $11.5 billion and agreed to take ownership stakes of $1.9 billion in such properties. It also has been developing a business that invests in real estate for clients such as SunTrust Banks Inc. (STI:US) and Norway’s sovereign-wealth fund, adding to fee income.

“There’s a lot of capital around the globe looking for yield,” said Merck, 55. “Core real estate has proven to be a good, solid long-term investment.”

MetLife held $40.9 billion of commercial mortgages at the end of December, up from $40.5 billion a year earlier. About half were linked to offices, 23 percent to retail buildings and 9 percent to apartment complexes. The New York-based insurer’s $488.8 billion portfolio is mainly invested in bonds.

Competition Mounting

The insurer owns investment properties, mostly consisting of offices, that it valued at $13.6 billion as of Dec. 31. Its holdings of apartments climbed 27 percent to $2.2 billion last year.

Competition from banks and government-sponsored enterprises limited multifamily lending, Merck said. Loans on those buildings fell 6.9 percent to $3.7 billion at the end of the year.

The homeownership rate in the U.S. slid to 65.2 percent in the fourth quarter of last year, from a high of 69 percent in 2004, Census Bureau data show. The figure is lower among people in their 20s and 30s. Rents climbed 3.2 percent last year, though the pace was faster in markets such as Seattle and New York, according to data from Reis Inc.

American International Group Inc. (AIG:US) Chief Executive Officer Robert Benmosche, 69, cited an increasing number of renters as his New York-based firm looks to add investments in apartments. New York-based Guardian Life Insurance Co. of America last year backed a $1 billion venture to bet on mid-tier apartments in western U.S. cities.

Crisis Rebound

Apartment-building values recovered more quickly from the crisis than other commercial property. Prices for the dwellings are 5.8 percent above pre-crisis levels, while total commercial-property prices remain below 2007 highs, according to the Moody’s/RCA Commercial Property Price indexes.

Amid the competition, MetLife is developing apartments from the ground up, leasing them out and collecting payments. The strategy can be more profitable over time, Merck said.

That’s the approach MetLife took with one of its best-known real estate investments. After developing the Stuyvesant Town and Peter Cooper Village apartment complex in the 1940s, MetLife owned the New York property for six decades before selling it for $5.4 billion in 2006.

MetLife typically targets higher-end properties in cities including New York, Los Angeles, San Francisco and Seattle, Merck said. The company is benefiting as more people become “renters by choice” after the housing crash, he said.

“The psychology of a lot of folks is that they’re not looking to buy houses for investment anymore,” he said.

Seeking Partners

The insurer boosted agricultural lending after expanding operations in Brazil. MetLife originated $3.3 billion in agricultural mortgages last year, the most since 2006. It held $12.4 billion of the debt as of Dec. 31, according to a document on the company’s website.

“We expect to continue our growth by identifying superior agricultural lending opportunities in the United States and abroad, especially in key emerging markets,” Barry Bogseth, head of MetLife’s agricultural portfolio unit, said in a March 4 statement.

Merck said MetLife is planning to expand a real-estate partnership with Norway’s sovereign-wealth fund and is looking to work with investors on more commercial-mortgage deals. The firm invested in commercial property in Washington, San Francisco and Boston in a $1.7 billion joint venture with Norges Bank Investment Management. In August, the insurer announced a commitment of as much as $5 billion for commercial-mortgage loans from Atlanta-based SunTrust.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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Companies Mentioned

  • MET
    (MetLife Inc)
    • $55.28 USD
    • -0.22
    • -0.4%
  • STI
    (SunTrust Banks Inc)
    • $38.5 USD
    • 0.25
    • 0.65%
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