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Pension Funds, Life Insurers Overtake Banks as Biggest CRE Lenders in Boston

Pension funds and insurance companies were significant players in Boston’s commercial real estate market in the first half of this year.

Boston, home to world-renowned educational institutions like Harvard and MIT, as well as over 30 other colleges and universities, ranks among the most educated cities in the country, both in terms of the number of college students and the proportion of its college educated population.

So perhaps it’s fitting that the No. 1 lender financing mortgages for commercial properties in Boston in the first half of this year was the Teachers Insurance & Annuity Association of America, a U.S. pension giant founded in 1918 to provide retirement income and life insurance to educators.

In addition, a different teacher pension fund—the New York State Teachers Retirement System, or NYSTRS—was one of the top 10 originators of commercial real estate loans in Boston in 2016, according to a CrediFi analysis based on a sample of $7.4 billion in commercial real estate loan originations from the first quarter of 2016 to the first quarter of 2017. NYSTRS originated over $100 million in loans for Boston commercial properties last year.

The analysis found that pension and insurance companies were significant players in Boston’s commercial real estate market—particularly in the first half of this year, when five pension and insurance providers originated around $1 billion in commercial real estate loans in Beantown.

Pension companies originated 16 percent of the loan amount in our Boston sample for the six quarters from the first quarter of 2016 to the second quarter of 2017 and insurance companies originated 10 percent.

Throw in other types of non-bank lenders, such as Los Angeles-based Mesa West Capital, a privately-held portfolio lender with a capital base of over $4 billion, and Red Mortgage Capital, a multifamily and affordable housing lender that’s a subsidiary of Tokyo-based financial services group Orix Corp., and what you get is total non-bank origination that came to about one-third (34 percent) of loan originations in our sample.

Two of the pension and insurance companies that were among the top 10 commercial real estate loan originators in Boston in the first half of the year are based in Canada: Toronto’s Manulife Financial and Oxford Properties, the real estate investment arm of the Ontario Municipal Employees Retirement System, one of Canada’s largest pension plans.

The other three leading pension and insurance loan originators in the first half of 2017 in our sample—New York Life Insurance Company and Hartford Fire Insurance Company, along with TIAA—are U.S.-based.

Financing the Harvard Club

TIAA isn’t just a pension fund for academic (and other) institutions that’s making a splash in a major college town. It also happens to be behind this year’s financing of the building that houses the Harvard Club of Boston.

TIAA originated a $380 million loan in March for One Federal Street, a 38-story office building in downtown Boston whose tenants include JPMorgan Chase, U.S. Bank and, in the penthouse, the Harvard Club.

The loan to New York-based real estate investment firm Tishman Speyer replaces a $330 million short-term loan that Deutsche Bank originated last year. Tishman used the Deutsche financing to repay its initial 10-year, $280 million acquisition loan from Lehman Brothers that was originated in 2006.

TIAA, which originated over $500 million in commercial real estate loans for Boston properties in the first half of 2017, also financed a $135 million loan for luxury South End apartment building Troy Boston at 275 Albany St.

A Fortune 100 company, TIAA saw its profits rise from $13.7 billion in 2015 to $16.6 billion in 2016 on the heels of its 2014 acquisition of Nuveen Investments and its expansion of real estate offerings, as well as offerings for investment classes such as agriculture and timber, Fortune magazine reported this year.

TIAA, which manages retirement account and mutual funds and sells insurance plans for its more than 15,000 institutional clients, also recently completed its acquisition of EverBank Financial Corp., a Florida-based financial services company.

As for more traditional commercial real estate lenders, the top bank originating loans in Boston in the first half of this year was Wells Fargo, which came in at No. 3 in our ranking, after TIAA and New York Life Insurance.

The top three originators in 2016, by contrast, were all banks. Morgan Stanley topped the list with over $1 billion in originations over the year, followed by JPMorgan and Deutsche Bank, both of which came in at over $500 million in our sample.

With the growth of commercial real estate loans on banks’ books slowing, as Federal Reserve policymakers said in the latest Federal Open Market Committee meeting, pension funds like TIAA and NYSTRS may be trying to teach us something about the potential significance of non-bank lending for commercial real estate finance.

Ely Razin is CEO of CrediFi, a big data platform serving the commercial real estate finance market. He can be reached at [email protected].

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