It’s funny how time changes things. American International Group, the embattled US insurance giant forced to accept $182.3 billion of Federal Reserve bailout funds in 2008 in order to escape total collapse, is again planning to be a player in the real estate investment game.
PERE has substantiated reports that, via its global real estate investment unit, AIG Global Real Estate, the one-time poster-boy of the credit crunch is gearing up to increase its exposure to the 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. But, as he put it, the platform turned into a very different animal once the Federal Reserve stepped in. Not so much an investment house, but a distressed seller of real estate assets.
In Asia, for instance, PERE revealed how, in one fell swoop, AIG ridded itself of a $5.4 billion real estate investment management business to Invesco Real Estate at the end of 2010. In another instance, it offloaded its New York and Tokyo headquarters within a month of each other in 2009 in deals valued at about $150 million and $1.2 billion, respectively.
It seems, however, that the tide has since turned. Robert Gifford, the former AEW Capital Management veteran originally brought in to help restructure AIG Global Real Estate and sell off its one-time $12.4 billion real estate fund management business, is today making headway on plans to ramp the business back up. Indeed, The Wall Street Journal reported this week how early forays were happening stateside. Approaches to development partners, particularly in the multifamily sector, have been made and it shouldn’t be long before we see “hundreds of millions dollars” being put to work.
Don’t expect AIG Global Real Estate’s activities to stop there either. As one insider said, its European infrastructure is still operational, if not a little scaled down from its prime. Under the leadership of former Van Eck Global Asset Management and Trammell Crow Real Estate executive Kevin Reid, the platform has capabilities in place. Asia might be more problematic, given that the management platform was sold to Invesco, although there is still asset management capacity in India as the country was not included in that sale.
Nonetheless, AIG has chosen its time well. Market conditions, particularly stateside, hold no comparison to the dismal days of 2008 when the Fed stepped in. As the former AIG Global Real Estate executive said: “It’s a good time to do it.”
Of course, plans are one thing and pulling off the comeback is another. Macro-political headwinds are unlikely to be an issue given that AIG already has reduced the amount of outstanding ‘government assistance’ by 75 percent. In addition, PERE understands that the US forays, at least, will come from capital on AIG’s balance sheet. As a result, the US government shouldn’t have an issue with AIG’s ambitions for more bricks and mortar.
However, if it intends to concurrently ramp up its third-party real estate funds business, that is another matter. If AIG puts its hands deeply into its own pockets for co-investments – it previously invested a minimum of 10 percent in its funds – that might sway those institutions willing to accept the platform’s previous fate as a product of wider issues beyond its control. However, with the Volcker rule threatening a three percent maximum, will that be enough to entice enough allies to give the platform another chance? Not a certainty.
Still, real estate is a people business, and Gifford has been accredited as a “very good people person.” He has worked hard to keep the current AIG Global Real Estate squad together and, furthermore, well incentivised. With the right people in place, anything is possible, so keep an eye on the hiring front. As things stand now, the funds infrastructure is understood to need patching up.
As AIG reported its fourth quarter 2011 results in February, president and chief executive Robert Benmosche said: “Two years ago, skeptics – and even some supporters – thought it inconceivable that we would be in a position to post our second consecutive annual profit.”
Two years ago, skeptics also thought it improbably AIG Global Real Estate would be put back in play to further bolster those profits. Now, however, we’re forced to consider once again whether there’s a new lease on life for the real estate platform of the one-time poster-boy of the credit crunch.