Insurance Capital Playing Increased Role in Commercial Real Estate Finance

Higher interest rates are actually driving the activity.


With interest rates expected to stay higher for longer in 2024, the commercial real estate industry is eagerly awaiting the moment when an uptick in transaction volume pierces the lingering clouds with a ray of sunlight. 

In this environment, several lenders have retrenched in the meantime or had the spigot for their sources of funding switched off. Others, however, have found sources of more patient, stable capital to maintain their activity levels. 

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This latter group includes private lenders who have raised substantial funds from insurance companies looking to invest more in commercial real estate credit.

“We have done pretty well in providing a suite of services to that group,” Warren de Haan, CEO of Acore Capital, said of the firm’s sharp focus on insurers. “It’s a group that continues to grow as, unlike the banks, there’s not a retracement in the insurance industry. 

“Those insurance companies continue to generate liabilities, and continue to grow, and they continue to generate the need for match-term financed assets like those we produce,” de Haan added. “They also get really excellent risk-based capital treatment on launches. That’s why it’s here to stay.” 

Acore has established “numerous” separately managed accounts (SMA) with insurance companies over the past decade, according to de Haan, with a stepped-up effort of late. The firm’s insurance roots go back to its inception in spring 2015, when Acore launched with a $1.6 billion capital commitment from Delphi Financial Group, a wholly owned subsidiary of the Tokio Marine Group, the largest publicly traded insurer in Japan.

De Haan said some of the smaller insurance companies in particular have opted to outsource their asset management functions to private equity firms with experience in CRE investment rather than keep it in-house. He stressed, though, that it takes a deep commitment for private lenders to invest in running SMAs for insurance companies. That’s because a large amount of infrastructure is required to support the necessary suite of services, including the origination of loans, accounting, asset management, daily reporting, and back- and middle-office functions.

Last year, Acore further ramped up its insurance capital ties with the hiring of a new managing director in Andrew Terry, former head of insurance at investment manager Schroders. Terry’s job is centered on expanding Acore’s relationships across the insurance industry.

“He deals with all the insurance companies who are looking for the yield that mortgages provide, whether it’s through whole loans or participations,” de Haan said. “That suite of services is something that we’re offering to more and more insurance companies to attract more capital under management for Acore to provide lower-cost, predictable capital to the lender to the borrowing community.”

The demand for insurance capital has also only increased in the last two years with interest rates rising to their highest levels in 22 years and a number of banks retreating to the lending sidelines. Insurance companies themselves have also raised plenty of capital that they are looking to deploy into commercial real estate.

PGIM Real Estate, which has insurance roots as a global asset business of Prudential (PRU) Financial, launched an open-ended debt fund six years ago. It’s grown to around $5 billion. Melissa Farrell, head of debt originations at PGIM, said insurance investors are attracted to the CRE space now given the interest rate environment.

“We do see life insurance companies coming into that space, and even our own is interested in it as well, just because, I think, it’s a good place to be in terms of where the market is right now,” Farrell said. “We see a lot of insurance companies using their own balance sheet and looking for higher returns in this market.”

Farrell noted that while PGIM’s debt fund is more focused on floating-rate loans for transitional-type assets in the quest for extra yield, conventional life companies tend to seek longer duration, fixed-rate CRE investments. PGIM has benefited of late from pension risk transfers, where companies look to offload liabilities to big insurance companies like Prudential — who then look to offset these liabilities through long-term, fixed-rate assets. Farrell stressed that duration is hard to obtain now, with investors looking for short-term loans given the expectation that the Federal Reserve will lower interest rates soon. 

While some asset management firms are looking to grow more in the insurance sector, PGIM is uniquely positioned in having a debt fund in addition to separate accounts managing third-party capital with core and core-plus lending strategies in addition to being supported by a major insurance company like Prudential.

“We’re coming at it from a different angle and I think we are at a really good position for that, because we do have this existing high $50 billion balance sheet in terms of our own general account, and then we have $110 billion overall of assets under management and administration,” Farrell said. “That includes our agency book as well as our debt fund. We’re just large, and I think we’ve done very well with the banks because we’re able to step in to fill the void in that larger loan space especially.”

The increased insurance capital raised by CRE debt funds is coming into focus at a time when the insurers themselves are well positioned to deploy capital, according to Kristen Fallon, a partner in the real estate practice at Nixon Peabody in Boston. Fallon said insurance companies along with pension funds have had the most money sitting on the sidelines ready to lend over the past 10 years. Borrowers would often bypass them, however, in the previous era of lower interest rates. 

“They’re straight shooters and looking to get a fixed rate of return,” Fallon said. “They want to play it for a number of years, and in high interest rate markets that was very appealing. But, when we had our low interest rate environment, those sources of capital had been largely overlooked and they are probably going to see a resurgence of interest, particularly as these maturities hit.”

Fallon noted that insurance companies can be an attractive option for borrowers seeking permanent financing if they can’t go the CMBS route and don’t have anything to bundle as part of the deal. 

There is a downside from a sponsorship perspective, Fallon said. Utilizing insurers for CRE loans involves expensive exit fees. Expectations that the Fed will bring down interest rates this year may hold back more utilization of the strategy anyway.

“They do not get into very exotic types of lending, so it’s your straight and narrow,” Fallon said. “They very rarely are going to delve into equity pledge facilities, mezzanine debt, or any sort of pref equity structure.” 

Fallon said the life companies she represents are aggressively looking to tackle more CRE deals and are seeing a big uptick of requests early this year after very little activity over the past decade. She said insurance firms could particularly play an important role with takeout financing on looming loan maturities or construction debt, but many lack experience marketing themselves to debt brokers. Many life companies have, however, positioned themselves to be more in the CRE lending game in recent years by acting as investors in joint ventures, according to Fallon. 

On the private equity side, some of the larger companies have been seeking increased access to insurance capital after Acore got a jump on the competition. Apollo acquired insurer Athene Holdings in 2021, and that same year KKR purchased a majority of insurance company Global Atlantic Financial Group. The trend continued last year when Blackstone agreed to purchase a 9.9 percent stake in American International Group’s life and retirement business. 

“It enabled those private equity firms to see more deal flow and make more money because the funding base of an insurance company is incredibly stable,” Acore’s de Haan said. “We were ahead of the curve in 2015, and, in terms of the size and scale of our separate accounts, we were far larger than almost anybody else in the insurance companies space.” 

Andrew Coen can be reached at