‘Big Money’ Investment Activity Drops Significantly During Pandemic

Major institutional real estate owners’ investment activity fell significantly due to the pandemic, but their portfolio allocations did not deviate significantly, reported Reonomy, New York.

Reonomy examined the activity of 35 major institutional investors to see how their portfolios evolved leading up to and through the pandemic. It found their investment activity, as measured by properties acquired and total dollar volume, was down 34 percent in 2020 compared with 2019.

“[But] looking at the ‘Big Money’ investment activity that did occur in 2020, their allocations did not deviate significantly from their pre-pandemic investment allocations,” Reonomy said in its report, Big Money: Portfolio Insights from Institutional Managers.

While most major institutional investors diversify among property types, the office sector remains the largest position across their portfolios, Reonomy said. “In 2020, Big Money allocated a proportionally larger amount of investment dollars to office properties in major markets…Contrary to much of the recent media buzz around a great urban exodus, Big Money continued to make investments in many of the largest population centers.”

The report broke investors into five peer groups: alternative investment managers, bank affiliates, insurer affiliates, real estate-focused managers and residential specialists. It found alternative investment managers such as Brookfield Asset Management, Invesco and The Blackstone Group have the largest portfolio allocation to the hospitality properties at 7 percent. “This allocation adds to their overall property portfolio diversification and is generally aligned with their higher risk tolerance and return objectives, especially when compared to the more heavily regulated bank affiliates and insurer affiliates peer groups,” the report said.

Bank affiliates including AEW Capital Management LP (Natixis), DB USA Corp. (Deutsche Bank) and JPMorgan Asset Management closely resembled alternative investment managers and real estate focused groups in terms of overall diversification, Reonomy said. “The average holding period of the properties in the bank affiliates portfolio, weighted by value, is 13 years–meaning that most properties held by the bank affiliates were acquired in 2008 or earlier; this holding period is at least two years longer than the other peer groups,” the report said.

Insurer affiliates including New York Life Insurance Co., Nuveen Asset Management and PGIM have the largest portfolio allocation to office properties, “which is consistent with their historical investment profile and overall allocation,” Reonomy said. Insurer affiliates place 44 percent of their investment dollars into the office sector compared to the other peer groups’ 37 percent average.

Real estate-focused managers such as CBRE Group, Stockbridge Capital Group and Tishman Speyer Properties generally have a smaller than average allocation to retail assets at just 8 percent. Their average holding period is 11 years, meaning most properties held by this peer group were acquired in 2010 or earlier, similar to insurer affiliates.

Residential specialists including Carmel Partners and Greystar Management Services have the largest relative allocation to multifamily, the report said. “The residential specialists have seen a surge in investment activity in the past five years when compared with their historical acquisition pace,” Reonomy said.