GERMANY - Allianz Real Estate has made its first foray into German property debt in a bid to diversify its fixed-income portfolio.

The insurance subsidiary's first deal in the market - a €300m loan to DWS fund for the €600m acquisition of Deutsche Bank's headquarters in Frankfurt - is meant to shift the fixed-income portfolio away from German Pfandbriefe, as well as its holdings in corporate and government bonds. DWS is a fund management subsidiary of Deutsche Bank.
Helmut Mühlhofer, head of debt and capital markets at Allianz Real Estate, told IP Real Estate: "The deal is perfect for what were looking for. It's a deal of a certain size, it's conservatively structured in terms of the loan-to-value ratio, and it's a fully refurbished building with top-rated tenants."

Mühlhofer said investors could generate higher returns from real estate debt than they could from direct investment "but that isn't the motive. Our motive is to diversify in the fixed-income space."

Although bank lending is unlikely to increase in the run-up to Basel III implementation, more insurers could enter the property debt market.

Muehlhofer said the insurer would try to differentiate itself from still buoyant lending by offering loans of between 7—10 years or longer. "The market could be opening - but it's still too early to tell," he said. "Financing for this kind of deal is still competitive. We're not trying to be the cheapest kid on the block."

Allianz intends to target financing for core assets in office, retail and logistics worth between €50 — €150m - and to act quickly and aggressively once it has identified attractive deals. Muehlhofer acknowledged these were relatively scarce but added that a further two—three deals in 2011 "would complete our mission. It's a question of finding the right deal for our client and for us."