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Canada's Sun Life sees long-term commercial real estate opportunities despite carnage

The logo of Sun Life Financial is seen in Toronto

(This Feb. 8 story has been refiled to add dropped word 'office' in paragraph 4)

By Nivedita Balu

TORONTO (Reuters) - Canada's Sun Life Financial said on Thursday it sees long-term opportunities to buy assets from the troubled U.S. commercial property sector, despite the value of its own office properties in the region falling 26%.

The beleaguered U.S. commercial real estate has taken a toll on lenders in Europe and Asia as borrowers are at the risk of defaulting on their loans due to high interest rates and low occupancies.

The recent selloff of New York Community Bancorp has soured investor sentiment and also dragged down peers in the United States, reviving fears of a global contagion stemming from the CRE sector.

Sun Life disclosed on Wednesday that the value of its office investments properties in the U.S. plunged to C$476 million ($353.75 million) as of Dec. 31, 2023, from C$647 million a year ago. In Canada, the value of its office spaces fell about 11% to C$1.56 billion.

But the insurer, Canada's second biggest, said as its investment are mostly long term, typically for a period of 10 to 20 years in their portfolio, the lowered valuations present opportunities.

"We like the opportunity of prices resetting lower because yes, we would hold these (properties) for twenty years," Randy Brown, SunLife's Chief Investment Officer said in an interview.

Brown noted they have "absolutely no pressure to sell" helping the company weather challenging situations and benefit from them because it provided "opportunities to go into the market."

Some areas Brown noted included industrial, where there is a demand versus supply imbalance, multi-family homes in the U.S. and Canada, data centers and cold storage real estate used for grocery and food distribution.

He said demand for office spaces could grow in the long term as the economy grows and demand returns.

"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 U.S.," Brown said.

The head of Canada's banking regulator has also said that losses related to commercial real estate are a manageable risk for Canada's biggest banks, historically seen as sturdier institutions during global crisis.

Sun Life invests in real estate assets through its SLC Management segment, which includes 34% in real estate equity and 4% in debt.

The insurer, which beat quarterly earnings estimates on Wednesday, said it had repositioned real estate debt and equity portfolios to reduce exposure to underperforming property sectors including retails and office, and those in suburban locations.

($1 = 1.3456 Canadian dollars)

(Reporting by Nivedita Balu in Toronto; Editing by Aurora Ellis and Josie Kao)