Since the global financial crisis, there has been a wholesale shift in the ownership of assets into the hands of those that can actively manage, according to Anne Kavanagh, global head of asset management and transactions at AXA Investment Management - Real Assets.
In this interview, she tells PropertyEU how the French insurer is now shifting its sights from the UK to continental Europe.
The Paris-based investment manager has in recent years been one of the most active home-grown players as a forward-funder of real estate developments and currently has 70 projects on the go with a total value of more than €10 bn, Kavanagh said. The development portfolio spans a number of European markets and several different sectors, she added. ‘For us this is business as usual. Many of these projects are develop-to-core strategies, which now represents a large proportion of the business we are undertaking for a number of our client mandates.’
In 2015, AXA led a consortium of international investors including Malaysia’s Temasek Holding to buy the site of the former Pinnacle development on 22 Bishopsgate in London for over €400 mln. But having been very active in London over the last five years, the biggest opportunities for development at present are now on the Continent, Kavanagh said. ‘Fundamentally, there is very little speculative debt financing available for developments and a very limited pipeline in most key European cities. We anticipate, as a slow economic recovery comes through, that the market will improve and we have already seen take-up in key markets return to the 10-year average.’
EXISTING STOCK IS OUTDATED
Since the financial crisis, new development has shrunk to less than 1% of stock per annum, she pointed out. ‘A lot of the stock is very old and not fit for purpose. In a low-growth low-inflation environment depreciation is becoming a big factor.’
AXA’s home country France is a case in point. But while Paris lags behind other major European cities, such as London and Frankfurt, the AXA team does have quite a few cranes on the ground in the French capital. Across France the company is working on various development projects valued at some €4 bn.
One major project the firm has been working on since 2010 on behalf of its third Development Venture fund is Qu4drans, an 86,000 m2 office scheme in the 15th arrondissement. The project, part of which was recently sold to an unnamed buyer, is a worthy sucessor of Tour First which AXA acquired earlier this year for some €800 mln on behalf of a club of investors seeking to invest in core European real estate assets. Interestingly, AXA was the original developer of the tower back in 1974 and also undertook the massive re-development of the building between 2007 and 2011 ahead of the sale of its remaining 50% stake to Beacon Capital Partners. ‘Tour First is now recognised as one of the most striking office towers in one of Europe’s foremost business districts,’ Pierre Vaquier, CEO AXA IM, said at the time of the acquisition in January this year. ‘This transaction demonstrates our confidence in the strength and prospects of the Paris office market,’ he added.
Looking at how the landscape has changed, five years ago very few players dared to step into speculative development, Kavanagh said. ‘Looking at ourselves in hindsight, and at the choices we made at that time, they were bold moves, especially when you consider that the most challenging aspect then was the economy. Now, it is a different set of factors. But that’s all part of the cycle, it changes constantly and we adapt and adjust within it.’
A key part of the risk management is in the initial underwriting, Kavanagh said. ‘We have to be very focused to manage the risks involved in these long-term projects and we thoroughly analyse all the key factors that affect the value. It’s important is to get in at the right price and to make prudent assumptions. We are also always dealing with changing landscapes and are constantly monitoring our projects in the context of the market, economy, geopolitics and currently an important referendum.’
HOTELS & RETAIL BELONG TO THE MIX
While AXA’s biggest investments are in offices, the Paris-based company is also a significant investor in retail, logistics and hotels but the development pipeline focuses largely on offices and hotels, Kavanagh said. However, last year it took part in a retail repositioning strategy in Germany following its acquisiton of a 35% stake in Ruhr Park Shopping Center in Bochum, Germany for €231 mln. The 35% stake was acquired from Perella Weinberg Real Estate Fund. The company was also one of the investors in Forum les Halles in Paris, the iconic shopping centre owned by Unibail-Rodamco which was re-opened in April following a massive redevelopment programme.
AXA IM - Real Assets company is also a major investor in large residential projects in Switzerland. Indeed, the company is one of the biggest investors in the country’s private rental sector, Kavanagh said. ‘We have been investing in Switzerland for more than 40 years. Our expertise and knowledge in the PRS sector is tremendous.’
