Canadian financial giant targets US real estate amid market dip

Despite a 26% drop in its office property values, Sun Life plans to buy in the US property sector

Canadian financial giant targets US real estate amid market dip

Sun Life Financial is looking at long-term investment opportunities in the distressed US commercial property sector, despite a significant decrease in the value of its own office properties in the region by 26 percent.  

The downturn in the US commercial real estate market has impacted lenders globally, with defaults on loans becoming a growing concern amid high interest rates and low occupancies. 

This scenario has been further exacerbated by the recent sell-off of New York Community Bancorp, which has negatively affected investor sentiment and raised concerns of a potential global contagion from the commercial real estate (CRE) sector.  

Sun Life revealed that its office investments in the US dropped to $476m as of December 31, 2023, from $647m a year earlier. Similarly, in Canada, the value of its office spaces decreased by about 11 percent to $1.56bn. 

Despite these challenges, Sun Life remains optimistic about the future. The insurer emphasizes its long-term investment strategy, which spans 10 to 20 years, viewing the current market downturn as an opportunity to acquire assets at lower prices.  

“We like the opportunity of prices resetting lower because yes, we would hold these (properties) for twenty years,” stated Randy Brown, Sun Life's chief investment officer. Brown highlighted that the company is under “absolutely no pressure to sell,” which positions it favorably to navigate through the current challenges and capitalize on market opportunities. 

Brown pointed out specific real estate sectors of interest, including industrial, multi-family homes in both the US and Canada, data centers, and cold storage facilities, which are critical for grocery and food distribution. He also projected a potential long-term increase in demand for office spaces as the economy grows and demand returns. 

Moreover, the resilience of the Canadian market was noted, with Brown mentioning, “In Canada, you tend to have large institutional holders who are in for the longer run; we can withstand price volatility... you tend to see less drawdowns in Canada historically than you would in the US” 

This sentiment is supported by the head of Canada's banking regulator, who has assessed losses related to commercial real estate as a manageable risk for the nation's major banks, known for their stability in times of global crises. 

Sun Life manages its real estate investments through its SLC Management segment, with 34 percent allocated to real estate equity and 4 percent to debt. Following its recent quarterly earnings beat, Sun Life disclosed its strategy to reposition its real estate debt and equity portfolios.  

This strategy aims to decrease exposure to sectors that are currently underperforming, including retail and office spaces, particularly those in suburban areas, further aligning its portfolio with its long-term investment outlook.