American International Group Inc., the largest commercial insurer in the U.S. and Canada, has been increasing lending for apartments as the company seeks to counter low yields on publicly traded bonds and volatility from hedge fund holdings.
The loan exposure for multifamily properties climbed to $5.2 billion as of Sept. 30, up 20 percent from $4.35 billion on June 30, according to a regulatory filing late Thursday. The company said it is well positioned for mortgages because it can hold funds for years or decades to back insurance policies and doesn’t need to worry about having to exit positions in a hurry.
“We are doing more direct lending, using our ability to take less-liquid assets, where we have done our own underwriting as opposed to buying securitized assets that have been underwritten by someone else,” Chief Executive Officer Peter Hancock said in a Bloomberg Television interview Thursday. The strategy involves “taking greater control over our destiny by doing our own homework on the risk.”
AIG has been making more loans under Chief Investment Officer Doug Dachille, who joined last year and has been scaling back from hedge funds, partly because of strict capital requirements on those holdings. The New York-based company has an investment portfolio of about $350 billion, mostly in bonds, and Dachille said in August that the property market is attractive because the ability to raise rents offers a measure of protection against inflation.
Tenant demand for apartments has been strong as strict lending standards and a tight inventory of houses on the market has kept some potential homebuyers on the sidelines. The U.S. apartment vacancy rate stood at 4.4 percent in the third quarter, close to a low from mid-2015, and rents rose 3.8 percent from a year earlier, according to property-research firm Reis Inc.
California and Massachusetts were among the states where AIG increased apartment lending the most in the third quarter. Its highest concentration is in New York. The insurer also added mortgages for office and industrial properties. The total for commercial mortgage lending was $24 billion as of Sept. 30, compared with $22.9 billion three months earlier.