Manulife Financial Corp., Canada’s largest life insurer by market value, bought its first office building in New York’s financial district to capitalize on demand as residential conversions squeeze supply of commercial space.
The benefits provider bought a 21-story building from Mitsui Fudosan Co., Japan’s largest property developer, for $166.5 million on Dec. 10, said Warren Thomson, chief investment officer of Manulife. The tower, located at 100 William St., is around the corner from the Federal Reserve and was designed by architect Emery Roth & Sons which was involved with the design of the World Trade Center towers that were destroyed on Sept. 11, 2001.
“There’s quite a bit of activity right now converting Class-A offices in the financial district into residential,” Thomson, who oversees C$457 billion ($431.5 billion) in fixed income, equities, and alternative assets including real estate, said in a phone interview from Manulife’s headquarters in Toronto on Dec. 13. “Those conversions start to reduce the supply. We think it’s going to be an interesting market for commercial rates. There should be some good pricing over time.”
Manulife, which said Sept. 27 that it was hesitant to look for assets in Manhattan as its real estate was prone to swings in value, tweaked its strategy. The value of commercial towers in the city is set to rise as developers convert offices to living spaces, according to Manulife.
Potential buyers of JPMorgan Chase & Co.’s 1 Chase Manhattan Plaza had been offered residential conversion as an option to capitalize on rising Manhattan condominium prices. Fosun International Ltd., the investment arm of China’s biggest closely-held industrial group, bought the building and intends to keep it as an office space. Manulife also intends to keep 100 William St. commercial.
Manulife’s allocation to real estate rose to 4 percent as of Sept. 30 from 3 percent at the same time in 2011. Commercial mortgages are also gaining traction with the insurer since the 2008 financial crisis when the U.S. mortgage market collapsed, making up 16 percent of the portfolio compared to 15 percent last year. It’ll remain at that level or increase in 2014, Thomson said.
“The credit spreads that we’re achieving relative to the risk inherent in the mortgages is attractive,” Thomson said. “Since the financial crisis it’s been a more favorable asset class.”