Allianz to roll out value-add strategy across Europe

Allianz Real Estate plans to roll out a European value-add strategy this year to sustain returns and complement its existing core investment programme.

‘The economy today is not really supporting the real estate market. There is no rental growth and cap rates are under pressure across Europe. Hence we are ready to compromise on the quality of the asset and consider properties which require some asset management work,’ commented Olivier Téran, the newly appointed chief investment officer of Allianz Real Estate appointed in January.

He added however that core will remain the main focus of its investments, which in 2014 totalled €2.5 bn, one of the largest investment figures ever reported by the German group.

This included a €120 mln indirect investment in logistics through AEW Europe, the second such investment by Allianz following the deployment in the past of €500 mln in a Prologis fund.

According to head of acquisitions Annette Kröger, the company is considering an entry into new markets, in particular Ireland, which is being looked at both from an equity and debt point of view.

‘This year we are including Ireland in our strategy. The Irish office market has started its recovery but this is still a long way to go,’ she commented.

Risk premium
Although cap rates have hit record lows – prime retail in Paris is at 3.25% - Allianz Real Estate’s CEO Olivier Piani noted that the risk premium between real estate and risk-free investments has never been as high as today, making real estate as attractive as ever.

‘Even though real estate yields are at their lowest point, the spread between bonds and real estate is at 350 bps which is the highest it’s ever been. So if you think this way real estate is the cheapest it has ever been. The dangerous exercise is the denominator – interest rates - which is not fixed. It changes and it will eventually rise. Therefore it is ever more important to go to markets where rents are growing, so that your numerator grows as well,’ Piani said during a press conference at the Mipim trade fair last in Cannes earier this month.

The company has also announced it expects to enter the Italian real estate lending sector this year.
'The authorities in Italy have cleared the situation regarding lending by insurance companies and we plan to start being active in the debt market,' commented Allianz's Italian head Mauro Montagner.

Following changes last year to Italy's withholding tax system and property lending legislation, it is now possible and cost-efficient for insurance companies to lend directly in the country. Previously insurers could only do so through a separate specific structure, which often made the investment too costly.

'This is a great opportunity for us and for the Italian market,' Montagner commented.

In early March the company announced the €90.5 mln 10-year financing of an office asset at 92 avenue de France on behalf of French companies of the Allianz Group. The loan was provided for Oxford Properties' second acquisition in Paris, worth a total of €200 mln.

Top Investors
Allianz Real Estate features in 11th place in PropertyEU's Top Investors ranking of dealmakers by transaction volume in 2014. Check out the Top Investors App for the ranking and background information on the top European dealmakers of 2014.