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A Walmart department store in West Haven, Conn., on Feb. 17, 2021.MIKE SEGAR/Reuters

Slate Asset Management is investing US$2.33-billion on the prospects of an expected recovery in U.S. retail, office and hotel sectors by acquiring the commercial real estate division of New York-based Annaly Capital Management Inc.

Toronto-based Slate, which currently manages approximately $6.5-billion of property assets for clients, is purchasing real estate loans and properties from Annaly, and hiring the team that ran the portfolio.

The largest portion of Annaly’s holdings is a US$400-million portfolio of grocery store-anchored properties, which will be acquired by Slate Grocery REIT, a Toronto Stock Exchange-listed division of the parent company. Slate Grocery REIT already owns US$1.3-billion of U.S. properties, with tenants that include Walmart, Kroger and Publix.

A third of Annaly’s properties are U.S. office buildings, and 8 per cent of the portfolio is invested in hotels, sectors where tenants have struggled during the pandemic. Slate said all loans in the Annaly portfolio are performing. Annaly also has significant interests in health care-related real estate and apartment buildings. The acquisition is expected to close in mid-2021.

Slate previously acquired property portfolios in Ontario and Alberta during economic downturns in those regions. The company was founded in 2005 by brothers Blair and Brady Welch, who previously both worked at a leading U.S. real estate investment company, Fortress Investment Group.

“We believe this transaction is another example of Slate’s ability to find value for our partners and investors at an opportune time in the market cycle,” said Blair Welch. In addition to its current portfolio, Slate has bought and sold more than $13-billion worth of properties in the past 15 years.

New York Stock Exchange-listed Annaly is selling one of its four divisions to focus on a far larger mortgage business. The company has US$102-billion of assets under management. In a press release, Annaly chief executive David Finkelstein said exiting commercial real estate “will provide additional capacity to further expand our leadership and operational capabilities across all aspects of the residential mortgage finance market.”

Along with its U.S. grocery-store properties, run from an office in Chicago, Slate currently owns office buildings, retail and residential real estate in Canada – it is redeveloping a neighbourhood at a crossroad in midtown Toronto. It also owns a portfolio of 200 grocery-store properties in Germany. In addition, the company has a division that invests in real estate securities, including mortgages and other debt instruments.

Slate hired BMO Capital Markets as its financial adviser and law firms Goodwin Procter LLP and McCarthy Tétrault LLP. Annaly used investment bank Evercore and law firm Ropes & Gray LLP.

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