Commercial Real Estate Finance

These days, American International Group (AIG) is known for two things: insurance and a government bailout. The insurance and financial giant, teetering on the edge of complete collapse in 2008, was forced to accept a $182.3 billion  federal bailout as part of the government’s scramble to save institutions that were “too big to fail.”

AIG is (or was, at least) far more diversified than many know: its holdings include not only individual and commercial insurance services, but mortgage lending, aviation, and telecommunications businesses. It even owns a ski resort, the Stowe Mountain Resort, for some reason.

One industry in which it used to enjoy significant clout was commercial real estate. To a great extent, CRE has fallen by the wayside in the wake of AIG’s implosion and government bailout. Encumbered by debt, stricter financial regulations, and the watchful eyes of its grudging government investors, the firm has cut back substantially on its real estate business, AIG Global Real Estate.  

In last week’s Friday Letter, PERE News reports:

…the one-time poster-boy of the credit crunch is gearing up to increase its exposure to the [real estate] asset class. Today, the platform has approximately $9.5 billion in assets under management and 150 people on staff – lofty, but a far cry from its prime …Indeed, one former senior executive recalls a division with 600 staff and nearer $40 billion in assets under management at one stage.

Clearly, despite the government bailout, AIG’s real estate branch was badly hit by the insolvency and policy shifts which gripped the company, not to mention the overall market decline that brought huge devaluations to office buildings, hotels, retail properties, etc. In 2010, AIG shed a major portion of its Global Real Estate division, selling a $5.4 billion Asian real estate management platform to Invesco (IVZ) Real Estate. Also, the previous year, AIG sold off its real estate headquarters in New York and Tokyo.

But now, AIG Global Real Estate is planning a comeback. As PERE reports: under Robert Gifford, who was brought in to oversee the venture’s reorganization, the real estate firm is hoping to put more of its capital to work, approaching developers and potential collaborators for U.S. real estate investments (apparently, they are particularly interested in multifamily, the go-to investment in today’s market). Clearly, real estate is a significant part of AIG’s overall recovery effort, and we will likely witness a lot more activity from that division than we have in the last few years.

Will it achieve its previous prominence? Hard to say. They’ll have an uphill battle as they compete with firms that more successfully weathered the economic crisis. To be sure, it will be a very different division, having divested the majority of its Asian real estate holdings. Europe, too, is seeing scaled-down real estate activity in some sectors, so the new AIG Global Real Estate could prove much more “at home” in the U.S. than its previous incarnation was.

A corporation as massive and complicated as AIG certainly won’t (or at least, shouldn’t) rely too heavily on just one of its holdings, so its fate probably doesn’t hinge on its real estate division. However, its real estate activity could help fulfill chairman Steve Miller’s claim that AIG could be free of its government dependence “within the next 12 months.”

They have quite a way to go. The Treasury Department, having recently decreased its stake by $6 billion, still owns a whopping 70% of the company.

#CRE #finance

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