AXA Real Estate shifts debt focus to mainland Europe

AXA Real Estate expects to see a shift in its debt business from the UK to mainland Europe this year, Isabelle Scemama, head of commercial real estate finance, told PropertyEU.

‘The market is a bit more competitive this year with UK and US insurance companies coming back. Banks are also in better shape now than they were a year ago. They haven’t recovered completely to 2007 levels, but this is also making a difference.’

AXA Real Estate's debt unit is active in the three core European markets - the UK, France and Germany - but Scemama said that the breakdown would depend on where the best risk-adjusted returns can be identified. So far the Paris-based company has seen more value in the UK and France than in Germany as spreads on German loans tend to be tighter due to the competition of domestic banks.

However, conditions are now changing in the UK, Scemama noted. ‘We will probably do more on the continent this year than last year. We still like the UK and will remain active there. And on the continent, margins are showing a similar trend to the UK.’

TIMING
The French asset manager chose the right time to be active in the UK, she added. ‘This year probably less than 50% of our spending will be in the UK and we may see a greater balance between France, Germany and the UK. That doesn’t mean I think their shares will be equal, but I do think this is a trend.’

Last year, the UK accounted for the bulk - or 45% - of the lending portfolio, followed by France and Germany. AXA Real Estaste has a well established network in France as well as Germany, Scemama said. ‘ We also have a good network in the Nordics and the Netherlands,’ she said, adding that she would consider core opportunities in the Netherlands.

AXA Real Estate is already active in the Netherlands which accounts for 3.5% of the total lending portfolio. The asset manager has the biggest presence in France (48.3%), followed by the UK with 28.9% and Germany with 16.4%. Other countries account for the remainder (2.9%).

As a result of increased competition in the UK, spreads for prime assets with low loan-to-values are stabilising or tightening, she added. Spreads for super-prime assets currently average around 200 basis points (bps), rising to 600 bps for core plus assets. ‘On average our returns are stable, but we may now also consider lending on assets that are a bit riskier. We wouldn’t look at secondary properties, but we would consider assets with some letting or refurbishment risk.’

AXA Real Estate has been active as a real estate lender since 2004 and has since become one of the largest players in Europe. The Paris-based investment manager aims to boost its debt platform to €10 bn within the coming 18 months and to €15 bn by the end of 2015.

€2 bn DEAL PROGRAMME
The Paris-based investment manager has over €2 bn to spend on its debt programme in the coming year after raising a total of €7 bn in commitments, Scemama said. Last year it deployed €2.3 bn, marking an increase of 53% from the €1.5 bn forked out in 2011. ‘Our objective is to do at least the same this year. Our pipeline so far this year is larger than it was this time last year. The key is to maintain quality and a good risk-return level.’

Scemama said AXA Real Estate had attracted 15 new clients over the past 12 months to its debt programme. ‘The AXA group continues to allocate to our debt programme, but in 2010 we opened it up to third parties. Now all of the new clients come from outside the AXA group from Europe and Asia. The disintermediation of the real estate financing industry and the growth of insurance companies as new lenders is really happening.’

Scemama declined to reveal the identity of new clients, but said they originated from France, Switzerland, Germany, the UK, Belgium, the Netherlands, the Nordics and Japan. In the current environment of low interest rates, a growing number of institutional investors are including fixed rate loans in their real estate allocation, Scemama said. Capital commitments typically range between €30-300 mln, but overall AXA is seeing significantly higher ticket sizes, she added. ‘New clients are committing larger amounts than we have seen before...Size is a key advantage in this market. It enables you to deliver the performance, obtain access to the market and do the deals. That is valued by investors.’

BIG TICKET DEALS
Thanks to its spending power, AXA Real Estate can underwrite loans as big as €200 mln, she added. ‘All borrowers want to diversify, but they want their loan books to remain manageable. They don’t want to have to negotiate with too many different lenders on a single loan.’

AXA Real Estate currently has a number of deals in the works involving office buildings with some letting risk and high levels of return, Scemama said. ‘In terms of asset type, the portfolio is a well balanced mix of office, retail and residential. A significant amount of the German portfolio includes residential.’

The French asset manager also provides loans on logistics assets, but only on a portfolio basis, Scemama added. Typically, the minimum size would involve at least 20 buildings and a minimum lot size of €50 mln.’

At 45.3%, offices accounted for the majority of transactions undertaken in 2012, followed by retail (26.6%), residential (18.1%), logistics (6.1%) and hotels ( 3.9%). The average loan term has been 4.85 years, Scemama said.

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