APG sets sights on real estate debt opportunities

APG Asset Management, the investment vehicle of EUR 200 bn Dutch pension fund ABP, has its sights on real estate related debt opportunities. But such debt opportunities are limited in Europe, APG's global head of real estate investment Patrick Kanters told PropertyEU in an interview.

'On a risk adjusted basis debt can be more interesting than equity at present. The debt market remains tight and dislocated providing ample opportunity to fill the funding gap through mezzanine finance or to capitalise on the vast amount of distress in commercial real estate debt markets by acquiring existing loans and preferred equity,' Kanters said.

Some investors, he said, are still struggling with the question of whether real estate debt is fixed income or equity. 'But investing in these types of debt is really just another way of investing in real estate. At the same time, it does require the same specialist skills to underwrite the real estate collateral.'

One of the few players active in this segment is Pramerica, the real estate investment and advisory business of New York-listed Prudential Financial. Earlier this year, APG put up funds for Pramerica's EUR 182 mln European real estate debt strategy.

Kanters declined to comment on the size of the investment, but said APG’s investments into real estate funds are generally in the vicinity of EUR 75-100 mln and not through majority stakes.

Discussing APG's investment strategy, Kanters said he had no particular preference for listed or unlisted real estate vehicles. He said, however, that it is a mistake to think listed companies are more transparent than their non-listed counterparts: 'Most people think it's the other way round. But I have found it easier to obtain information from non-listed companies. I can ask them anything and generally get more information in greater detail. For example, information on LTVs, expirations and covenants per loan for our non-listed participations. I cannot by any means say the same for our listed shareholdings.'

While non-listed investment vehicles have come under heavy fire since the downturn due to poor performance and perceived lack of alignment, the sector as a whole has undergone an 'incredible' development in terms of transparency and implementation of best practices in the past 10 to 15 years, Kanters maintained, adding that this process has to continue.

Click on the link below to read 'APG boosts allocation to real estate'. The full interview with APG's Patrick Kanters appears in the September edition of PropertyEU Magazine.