How Private Equity Is Leveraging Life Insurance To Increase Its CRE Foothold

In the pursuit of growth, the tentacles of private equity have infiltrated the balance sheets of nearly every sector of the real estate industry. Most recently, they’ve grasped onto one of its largest sources of capital: life insurance companies. 

The partnerships between the two players have changed the financial ecosystem and are only likely to increase. But the surge of investment from private equity into life insurance and private credit doesn't necessarily mean there is more capital available for commercial real estate, market insiders tell Bisnow. 

It just makes the arms of private equity hard to avoid, even as banks return to the table.

“This is not that a truck just backed up and dumped a bunch more money into the real estate space. That's not the case. What the case is, it's moved,” JLL Executive Managing Director and Debt Platform Leader Trey Morsbach said. “It’s the evolution of capitalism.”

The insurance assets of private equity firms doubled in five years to nearly $800B in the U.S. as of 2023, up from less than $200B a decade before, according to data from JLL. 

And as of 2023, life insurance companies held over $1.2T in total real estate assets, including more than $610B of commercial mortgage loans, according to an investor presentation by Athene Holding, the life insurance company owned by Apollo Global Management. 

At first the partnership may seem strange. Life companies are historically known to be conservative and stringent about where they put capital, seeking out the most stable assets. Private equity firms are notorious for having high levels of leverage and making riskier bets.

But their goals have aligned. 

“They're both seeking stable, long-term capital sources,” Commercial Real Estate Finance Council President and CEO Lisa Pendergast said. “It’s symbiotic.”

Private equity giants need to find ways to fatten their assets under management in order to continue generating revenue and demonstrating growth to shareholders.

On the other side, life companies are facing pressure as aging populations with longer life expectancies create more demand for annuities, through which purchasers exchange premiums for a stream of income, typically following retirement. 

Total annuity sales reached $432.4B in 2024, up 12% year-over-year, according to research by the Life Insurance Marketing and Research Association. It’s the third consecutive year of record sales. As a result, life companies have been left with huge pools of capital — and they are giving them to asset management giants. 

“It doesn't make sense to invest [premiums] in the public markets, because the vast majority of the returns in the public markets today are really concentrated in about seven or eight stocks and there's a lot of volatility,” PwC Real Estate Deals Leader Tim Bodner said. “So that makes the private market very attractive, and that's what's driving this.”

“You got this structural change in the commercial real estate markets and the capital markets,” he added.

Over 90% of insurers plan to increase their private market exposure in the next two years, with 30% planning to focus on private debt, according to BlackRock’s 2024 survey of 410 senior executives in the insurer sector with a combined $27T of AUM. 

Already within just the past few years, the collaborations between private credit and insurers have bred behemoths in the industry.

When Apollo completed its $11B merger with Athene in January 2022, the company announced that it would create $15B of deployable capital over the following five years. It also set a target to reach $1T AUM by 2026. 

As of the end of 2024, the firm had $751B in AUM, with Athene representing about 44% of that total, according to Apollo’s latest investor presentation. It also claims to be the largest alternative credit manager with $616B. 

Athene’s commercial real estate investments are “virtually all debt,” according to an investor presentation by the insurer. Its commercial mortgage loan portfolio totals $26B. 

Rival Blackstone, which owns more global commercial real estate than any other company, has also spread across the insurance space.

In 2021, Allstate sold its life and annuity business to Blackstone for $2.8B. That same year, Blackstone bought a 9.9% stake in AIG’s life and retirement arm, which has since rebranded to Corebridge Financial, for $2.2B. 

Commercial mortgage loans and CMBS combined make up nearly 20% of Corebridge’s $221B portfolio, according to a third-quarter 2024 investor presentation. 

In 2022, Blackstone was tapped to serve as investment management for Resolution Life’s assets, including private credit and real estate. Nippon Life has since acquired Resolution Life, but Blackstone has stuck to its role.

In December, BlackRock made a massive, $12B acquisition of HPS Investment Partners, giving the asset manager access to $123B in private credit investments. HPS has invested heavily on the debt and equity sides of U.S. and European real estate, including a $800M joint venture with Related Cos. 

BlackRock Chairman and CEO Larry Fink said he doesn’t plan to stop there. During a call with investors in January, he called insurance "one of the primary areas of growth for us.”

Other private equity and insurance tie-ups since the start of 2024 include KKR and Global Atlantic, Elliott Management-backed Prosperity Life Group and National Western Life Group, Sixth Street and Northwestern Mutual, and Brookfield and American Equity Investment Life.

“All of those big asset managers have woken up over the last, I would say, less than 10 years,” CBRE Investment Banking Managing Director Damien Smith said. “It's certainly very thematic over the last three or four.” 

Both private credit and life companies have dominated the commercial real estate lending space over the past few years as banks have taken a step back to reevaluate their books.

“That really opened up the playing field for firms like us to lend to much higher quality sponsors and properties,” said Ran Eliasaf, founder and managing partner of private equity firm Northwind Group. “It's really been an amazing run for private lenders.”

Financial institutions, which traditionally have been responsible for about half of commercial real estate debt, have faced increased regulatory pressures following several bank failures. Conservative underwriting caused banks to account for just 18% of origination volume in the third quarter, down from 38% a year prior, according to a report by CBRE.

That quarter, life companies emerged as the top non-agency lending group, with 43% of market share, followed by alternative lenders with 34%, according to CBRE. That was up from 33% and 27%, respectively, a year before. 

But banks have returned with an appetite. In the fourth quarter, banks accounted for 43% of loan closings, life companies provided 33% of loan originations, and alternative lenders were pushed back to a 23% share of the market.

The comeback is partially fueled by the new administration, which is expected to ease banking regulation, including potentially not implementing Basel III Endgame. The set of rules, which were delayed until 2026, would change the economics underlying banking by increasing capital standards. 

Banks had already begun shoring up reserves in preparation for the implementation, all while spending time healing their balance sheets. President Donald Trump has said he wants to roll back regulations that prevent banks from taking on more risk.

“It was like a light switch, as many other things are in this country with this administration,” Morsbach said. “Now you have banks that are theoretically overcapitalized, allowing them to be more competitive and more aggressive.”

But while banks pulled back from directly lending to real estate, they didn't disappear. Many simply crept into the background, such as by turning to — guess who — private equity to do their lending for them.

Morsbach expects that to continue and doubts that banks will return to their former volumes of loan origination. 

“Structurally, the business has changed. They should never be that high again,” Morsbach said. “But they're just going to now lend against private capital in addition to their own direct lending, and combined, they may end up with that same level of participation.”