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Clal Backs New York Life in its First Dedicated Value-Added Investment Fund

Despite Lateness in Up Cycle, Analysts Say Life Insurers Still Have Some Runway Ahead
June 29, 2018
Crestone at Shadow Mountain in the North Phoenix submarket is an example of a New York Life value-add investment.

New York Life Real Estate Investors held final closing of its first dedicated national value-add vehicle, The Madison Square Value Enhancement Fund.

The fund, with more than $300 million of capital committed for spending, will invest in office, multifamily, and industrial property located in primary and secondary markets in the United States.

Clal Insurance, one of the largest insurance companies in Israel with over $50 billion in assets under management, is joining New York Life in the fund.

"The new fund fills an important role in our third-party offerings," said Paul Behar, head of business development at New York Life Real Estate Investors in a statement announcing the closing. "While we invest in value-added transactions through a regional fund and a non-core bucket within our core open-end fund, this would mark our first dedicated national value-added vehicle."

"This program allows us to meet the needs of third-party investors who are seeking geographic diversification and higher returns," he added. "And it is clear to us that Clal is very well aligned with our firm and would be the right investor with which to launch our inaugural third party value added program."

Anath Levin, deputy chief executive and head of finance, credit and the investment division of Clal Insurance, noted that the fund is part of its long-term strategy to invest in U.S. real estate.

Earlier this year, New York Life Real Estate Investors, through an affiliate of the fund, paid $39.6 million for Crestone at Shadow Mountain, a 248-unit garden-style apartment property in Phoenix’s upscale Paradise Valley submarket. New York life is upgrading the property's common areas and completing interior unit renovations. The firm said it is actively seeking to acquire additional properties throughout the U.S.

While every investor has his or her own characterization of value-add property, typically these deals involve buying under-performing properties or those needing a capital infusion to reposition them in the market or improving them in some way, with a goal of selling at a gain later.

Fitch Ratings expects relatively stable conditions in the commercial real estate market to drive investment results for U.S. life insurers over the next 12 to 24 months.

The office, multifamily and industrial sector fundamentals continue to build on the positive trends observed in recent years, Fitch analysts noted in a teleconference call this week. However, they cautioned that the office and multifamily sectors may be at or approaching their peaks.

In addition, certain markets with significant exposure to the energy industry, or with large amounts of new construction, could face challenges in the coming years, the Fitch analysts added.

About 18 percent of life insurers' assets are tied up in real estate related investments, primarily commercial mortgages and CMBS bonds.

New York Life Insurance Co. is well under that ratio with about 9 percent of its assets invested in real estate. At the end of March, the life insurer held about $1.25 billion in income producing property investments.

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