German insurer Allianz has been beefing up its real estate lending activities in recent years and is now looking at opportunities in the UK, Sara Seddon Kilbinger reports.
Allianz Real Estate is eyeing the UK debt space as new lending opportunities surface following the vote to leave the EU, according to Roland Fuchs, head of European real estate finance at Allianz Real Estate.
‘We see opportunities on the lending side there, due to the price correction and weaker sterling…so we certainly aren’t excluding underwriting further loans there,’ he says. While Allianz has not been a big investor in the UK debt space to date, it did finance a NorthStar pan-European portfolio, including UK assets, in July 2015. Allianz Real Estate took a €365 mln slice of Aareal Bank’s €630 mln loan to NorthStar Realty Finance. It marked the German insurance company’s first cross-border financing of a pan-European portfolio.
The company does not exclude investing further in the UK, either on the equity or on the debt side, Fuchs adds. ‘However, the risk-adjusted pricing must be attractive for our investors. This is already the case for debt investments, where margins in the UK have already balanced out on reasonable sustainable levels, unlike in some other European markets, where margin levels are still low and somewhat pending cyclical corrections.’
UK is relatively volatile
Fuchs does not expect the Brexit vote to have a big impact on Allianz Real Estate’s business in the UK, although he concedes that ‘we have to keep in mind that the UK market has always been relatively volatile, so it’s too early to say how big the downturn could be’.
Germany’s lending market has also stabilised in the past year, according to Fuchs:‘The market is still very broad, liquid and very competitive. The main difference since last year is that loan margins have stabilised at around 80 bps to 120 bps on prime assets. That means that the downward trend has stopped. As long as German economic fundamentals remain strong, I think that we will still see ongoing interest of lenders to be strongly engaged in Germany and we could see an increase in loan margins, particularly on very long-term loans. That could be a trend going into next year.’
The biggest loan that Allianz Real Estate has underwritten so far this year was for an amendment to the ‘Pont de Flandre’ business park in Paris in June. The amendment extends the remaining term of the loan by 20 years and increases the total amount up to €225 mln. ‘It was unsual because it’s a 20- year loan and it allowed the borrower, Icade, to significantly expand on the liability side. For our part, we got an attractive, long-term investment, which is a good match for our own liabilities,’ Fuchs says.
'Big ticket' loans
Allianz continues to focus on ‘big ticket’ loans of between €100 mln and €150 mln, although it has underwritten larger ones. The lending arm targets offices, retail and logistics assets in 10 European markets, including Germany, Spain and France.
‘We are opportunistic when it comes to loans, we’re not after a certain market share in each country so we don’t have a volume target,’ Fuchs says. ‘In addition to our 10 markets in Europe, we are also an active
lender in the US because the economic fundamentals are strong on both the debt and equity side.’
In May, the group underwrote a loan for €154.3 mln for the IZD Tower in Vienna, Austria which marked its first large office loan in the country. European insurance companies have significantly stepped up their real estate lending activities in the wake of the global financial crisis. Allianz Real Estate had €41.7 bn of AUM as of end-December 2015. Its loan portfolio globally stood at €12.4 bn, of which more than €4 bn is in Europe, with the remaining €8.4 bn in the US. In Europe the company forked out €1.9 bn last year.
UK investment managers affiliated to insurers such as Aviva Investors, M&G Real Estate and Standard Life have all boosted their real estate lending portfolios in recent years. But Paris-based AXA Investment Management – Real Assets leads the pack with a real estate debt portfolio now totalling some €13 bn, roughly 25% of the total real estate portfolio.
