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Principal Financial joins Macquarie in CMBS bet as sales surge

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(Bloomberg) — Principal Financial Group Inc., the provider of life insurance and retirement products, is joining with Macquarie Group Ltd. in a venture that will make loans and package them into bonds.

The real estate arm of Principal Financial will underwrite, close and service the loans while Sydney-based Macquarie will provide funding, the companies said in a statement today.

Australia’s largest investment bank is pushing into commercial mortgage-backed securities (CMBS) market that is rebounding after shutting in 2008. Wall Street banks this year have arranged about $54.6 billion of U.S. CMBS tied to everything from strip malls to skyscrapers after issuance doubled to $80 billion in 2013. Macquarie this year hired Tim Gallagher, who had led Morgan Stanley’s commercial-real estate debt syndicate, to expand in the U.S.

The venture will help the insurer “offer a wider menu of options for our borrowers and leverage the strengths of both firms,” Margie Custis, a managing director for Des Moines, Iowa-based Principal’s real estate arm, said in the statement.

Principal is among U.S. insurers betting on commercial real estate to generate fee income and counter bond yields that are near historic lows. MetLife Inc., the largest U.S. life insurer, has invested in the past year in office towers in Boston, Washington and San Francisco with Norway’s sovereign wealth fund.

Principal Real Estate Investors has contributed almost 2,000 loans totaling more than $16 billion to more than 50 securitizations, according to the statement. The business manages or subadvises $52.6 billion in commercial real estate assets, compared with about $34 billion four years ago.

Larry Zimpleman, the chief executive officer of Principal, has been highlighting opportunities in commercial property for years. “Smart capital is starting to queue up,” he said in 2010.


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