AIG Investment Head: Industrial Is The New Multifamily

As lending on multifamily construction continues to tighten, the man who directs billions of dollars of investment for AIG Global Real Estate said industrial has surpassed multifamily as real estate's hottest sector. 

"We’re actively leaning in and trying to do more industrial," AIG head of U.S. investments Mark Hertz said at Bisnow's Capital Markets and Real Estate finance event Thursday morning. "We think industrial is probably the new darling of the real estate market. It's probably overtaking multifamily because of the general growth of the economy and the expansion of e-commerce."

Hertz said AIG is investing in speculative development of light industrial product. He said the firm is reducing its investment in urban, Class-A multifamily assets and shifting it toward value-add, Class-B apartments, which he called a red-hot market. He said the firm bid on a Class-B multifamily property in Los Angeles last week and thought it made a good offer, but ended up 14th out of about 20 bidders. 

ACORE Capital managing director Tony Fineman agreed with Hertz and said his firm, which was launched 18 months ago by four senior members of Starwood Property Trust, is looking to get more into the industrial space. 

"If you look around at the major markets, all the industrial space has actually become either apartments or office," Fineman said. "So there’s a dearth of industrial space out there."

Fineman said that the unwillingness of banks to do construction loans in recent months has created more opportunities for investors to do development deals.

"I'd say eight months ago, even in our space, there were not a lot of guys doing construction," Fineman said. "But I think that our competitors are looking at the fact that, because there’s a dearth of capital that is pursuing construction deals, there’s a lot of opportunity to get outsize returns."

Savills Studley senior managing director Stephanie Lynch said developers with solid track records and smart business plans have a ton of financing options to choose from. She said private equity funds, debt funds, insurance companies and foreign investors all have tons of unallocated capital waiting to be put into real estate.

"One of the opportunities in this market is there is so much capital that has been raised for real estate that is as yet unallocated," she said. "So there’s an incredible opportunity for folks to capture some of that if they can deliver the promise of pipeline and scale."

Atlantic Council senior fellow Julie Chon, the event's keynote speaker, helped craft the Dodd-Frank Act and several other laws in the wake of the financial crisis as senior adviser to Senate Banking Committee chairman Christopher Dodd.

She said community banks should expect a more favorable environment under President Donald Trump's administration because of two key appointments he has made: Treasury Secretary Steve Mnuchin and the Federal Reserve vice chair for supervision. This appointment has yet to be named but Chon said she has heard discussion it could be a top community banking lawyer. 

"Community and regional banks account for over half of financing transactions provided to commercial real estate," Chon said. "So any type of regulatory relief, even if there’s an absence of congressional movement, if these types of people are leading the regulatory agencies at the top, they will have a much more sympathetic ear and ease regulations going forward, which will impact commercial real estate favorably."  

Similarly, Chon said that even in the absence of congressional action on infrastructure spending, she thinks the attitude Trump is taking will promote more private investment. 

"I am not encouraged by the political climate to see the government move forward on an actual piece of legislation that will promote more infrastructure investment," Chon said. "But I do believe the directional support we see from this administration, the positive tone, the emphasis they’re putting on it will have a positive effect in terms of private investor confidence in pursuing more of these projects."