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After $10 billion in sales, MetLife looks outside New York

The $5.4 billion sale of Peter Cooper Village and Stuyvesant Town marks the final piece of Metropolitan Life's diversification strategy to shed about $10 billion worth of its Manhattan real estate holdings.

Although it has sold over half of its New York City portfolio, MetLife has no intention of leaving the New York City market and isn't anticipating any large sales in the next year, said Robert Merck, a senior managing director and head of real estate investments for MetLife. The company continues to invest in real estate in Miami and internationally in Mexico, the United Kingdom, Eastern Europe and Canada.

"We sold $10 billion dollars of property," Merck said last month. "What we had in New York City is a fairly large concentration of assets in one market. We wanted a better diversified portfolio."

In mid-October, MetLife affiliate Metropolitan Tower Life Insurance Company grabbed headlines after selling Cooper Village and Stuy Town to Tishman Speyer and BlackRock Realty for $5.4 billion. Bids for the massive rent-stabilized residential complex of 12,232 units ranged from $4.3 billion to almost $5.5 billion. Experts say the value will double as 1,600 apartments are decontrolled over the next two years, joining the 27 percent of the property's other apartments now at market rate.

"All the timing is right for a sale for this product type. Interest rates are low and the rental and capital markets are good," said Eric Anton, principal at Eastern Consolidated. "MetLife had two monster assets -the MetLife building and Stuy Town -- just in Manhattan. When you have all that, you want to diversify."

Anton speculated that another reason MetLife might have wanted to sell Stuy Town was the change of power in Congress. "When government changes, it can affect affordable housing policies and it could ultimately hurt you. You never know."

MetLife also sold One Madison Avenue to SL Green for $918 million as part of the diversification strategy.

"It's not prudent for any major investor to have all their eggs in one basket," said Dan Fasulo, director at research firm Real Capital Analytics. "Diversity is something that makes sense for their stake holders."

The company's New York City portfolio now includes 85 Broadway as well as 575 Fifth Avenue, which it bought last year from Sterling Equities for $385 million.

MetLife plans on remaining in the New York City market, since insurers of the company's scale need at least a portion of their portfolios in top real estate markets as a hedge against outsized claims, according to brokers.

"We very much like New York City in terms of real estate investment," Merck said. "To be a major investor, New York City is at the top of the list."

In New York, MetLife currently has $6 billion in mortgage loans in addition to their two large properties. MetLife also has about $30 billion in commercial mortgages and about $8 billion in real estate equities.

"Pricing has gotten to a level that Manhattan real estate became too much of a piece of their portfolio," Fasulo said of MetLife's decision to diversify.

"We've seen the reverse trend," Fasulo said. "Underweighted investors like Equity Office Properties -- historically one of the major nationwide property owners -- only a few years ago started purchasing in Manhattan."

MetLife recently got its feet wet in Miami. In September, the company purchased three buildings at Waterford at Blue Lagoon Office Park in Airport West for $97.5 million from the Teachers Insurance Annuity Association.

Fasulo says that while MetLife is purchasing elsewhere, it was a logical move to sell in New York.

"When prices increase this much and when the market is so liquid, it's hard for long-term owners not to reevaluate all their options," Fasulo said.

According to Merck, MetLife is interested in reinvesting in New York City but has no definite plans to do so yet.

Fasulo didn't speculate where MetLife's profits from the $10 billion in sales may go, but said the company would use the 1031 exchange tax provision to purchase other commercial property sans taxes. A 1031 exchange allows an investor to defer capital gains taxes if the proceeds from the sale of one property -- which has been owned for at least a year -- are used to buy another property within 180 days.

"Rising investors are selling off assets in markets they don't want to be in and reallocating money to other markets," Fasulo said.


Go to chart: A look at some of MetLife's recent NYC transactions