Annaly Capital Management's (NYSE:NLY) foray into the commercial real estate market has been on the fast-track since its acquisition of CreXus Investment Corp. one year ago, and it shows.
Through its subsidiary formed from that union, Annaly Commercial Real Estate Group, the mortgage REIT has expanded its stable of commercial real estate assets from $1 billion in June of last year to $1.7 billion at the end of March, 2014.
New staff, and a new partnership
Annaly has been busily building up its commercial unit this spring, adding specialists to its management structure and forging new relationships with other business entities. In April, Annaly announced a slew of new hires, one of which was Michael Quinn, a one-time manager in Morgan Stanley's real estate investment arm.
Quinn heads up Annaly's Equity Commercial Real Estate Investment unit, charged with creating and managing a triple net lease portfolio, wherein tenants of business properties pay real estate taxes, insurance, and building maintenance – in addition to rent payments.
To that end, Annaly has established a business initiative with Inland Real Estate Corp. (NYSE:IRC), a commercial real estate and finance company based in Oak Brook, Illinois. The affiliation is meant to assist Annaly in its quest to acquire commercial properties in the restaurant, office, industrial, and retail sectors. Inland manages $20 billion of commercial real estate holdings in 48 U.S. states. In its first-quarter earnings announcement earlier this month, it reported revenue of $57 million, up nearly 47% year over year.
Annaly is also bulking up its middle-market lending arm, as well, bringing Managing Director J. David Frost on board in the last few months. Annaly is expanding its commercial lending, which was one of CreXus' primary functions when it was created in 2009. Annaly concluded its first $400 million securitization of its first-mortgage, commercial real estate loans in the first quarter, which management had alluded to in its fourth-quarter conference call in February.
On the first-quarter earnings transcript, management makes it clear that Annaly is as committed to acquiring commercial real estate as it is to purchasing debt instruments.
CEO Wellington Denahan-Norris notes that Annaly's commercial investment portfolio is yielding a little over 9%, and that the company plans to keep growing the commercial unit "within our 25% equity allocation."
Annaly's diversification project is well under way, and will doubtless continue its heady expansion throughout the year.
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