Legal & General and Schroders are set to invest hundreds of millions of dollars in U.S. commercial real estate, focusing on rental properties and real estate debt, while largely avoiding the struggling office sector. Both companies are expanding their U.S. real estate teams, anticipating a recovery in property prices due to falling interest rates. Schroders recently invested in a pan-American data centre portfolio and sees significant opportunities in real estate debt as banks retreat. Phoenix Group also plans to invest in U.S. real estate but has not disclosed specific details on the scale of its investments.
British investment managers Legal & General and Schroders have revealed plans to invest hundreds of millions of dollars into U.S. commercial property, while strategically avoiding the struggling office sector. Both companies manage over £1.9 trillion (USD 2.5 trillion) in assets and have been expanding their U.S. real estate teams in preparation for these investments, as they anticipate a recovery in property prices driven by decreasing interest rates.
L&G CEO Antonio Simoes highlighted the U.S. real estate market as a crucial area of expansion for the company, affirming that the fundamentals of the market remain strong despite current challenges. The global property sector has been hit by rising borrowing costs and the shift to home working following the pandemic, with the U.S. office market particularly affected by concerns over oversupply. However, expectations of further interest rate cuts, following the U.S. Federal Reserve's recent reduction of 50 basis points, have improved the outlook for property investments.
According to property analysts, the U.S. real estate market tends to recover more quickly than that of continental Europe, as lenders and developers in the U.S. are generally faster to reprice assets. This characteristic is seen as a key advantage by investors like L&G and Schroders, as they seek to capitalise on potential opportunities during this recovery period.
L&G plans to significantly expand its U.S. real estate equity portfolio over the next few years, with hundreds of millions of dollars earmarked for the venture. In addition, the company aims to grow its presence in the U.S. real estate debt sector, an area in which it has already established a foothold. L&G has built a team of around 20 professionals in Chicago to spearhead its equity investment efforts, with a primary focus on rental properties, which have been more resilient compared to office spaces.
Similarly, Schroders intends to increase its U.S. real estate equity portfolio, which currently stands at tens of millions of dollars, to a figure in the hundreds of millions over the medium term. The company recently made an investment in a pan-American data centre portfolio, marking one of its initial ventures into the U.S. property market. Michelle Russell-Dowe, co-head of private debt and credit alternatives at Schroders Capital, indicated that the U.S. Federal Reserve's move towards normalising interest rates could unlock significant demand for real estate investments. Schroders has also identified substantial opportunities in the real estate debt market, as stricter capital regulations have led banks to withdraw from certain lending activities. Jeffrey Williams, a New York-based investor at Schroders, remarked that there is a significant gap in financing, creating new opportunities for other lenders to step in.
Although both companies are primarily focusing on areas of the U.S. property market that have shown resilience, such as rental homes and real estate debt, Schroders has not entirely ruled out investing in office spaces. However, any office investments would be limited to high-quality developments. In addition to L&G and Schroders, Phoenix Group's fund management arm, which oversees approximately £290 billion in assets, also expressed plans to invest substantially in U.S. real estate. However, the company declined to provide specific details regarding the scale of its investment plans.
British investment managers Legal & General and Schroders are poised to invest hundreds of millions of dollars in the U.S. commercial property market. Both firms see potential for recovery in property prices due to decreasing interest rates and aim to capitalise on opportunities within more resilient segments, such as rental homes and real estate debt. Their plans underscore a broader trend among investment managers to adapt to market conditions while seeking profitable ventures in the evolving landscape of U.S. real estate.
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