Amundi, France’s pre-eminent fundraiser of retail capital, is seeking to fight its real estate peers for a bigger slice of the pan-European institutional market. Jane Roberts spoke to Pedro Antonio Arias, the company's global head of real and alternative assets, and Eric Wohleber, global head of sales for real assets.

amundi bought the coeur défense office complex in paris from lone star for 1 8 bn last october

Amundi Bought the Coeur Défense Office Complex in Paris From Lone Star For 1 8 Bn Last October

Amundi’s place as one of the most active accumulators of core property in Europe in the last few years is fuelled by its success in attracting cash from retail investors into French open-ended real estate vehicles.

For five years, the French-based international investment management firm has remained number one in terms of SCPI and OPCI inflows despite increasing competition. It estimates that its market share has contracted only slightly from a peak of 60% to around 52% today.

Pedro Antonio Arias, Amundi’s global head of real and alternative assets, characterises the French retail fund market as being in turbo-charged ‘recovery mode’ for the last three years. ‘In recovery’ because French banks and insurance groups were burned 15-20 years ago, just as happened to the German open-ended funds, and stopped selling this product. ‘They had a bad experience when the clients discovered the products were not liquid at all...the outcome was that retail networks completely stopped selling what they call la pierre-papier’ for a decade,’ Arias recalls.

But for the last few years individual investors have been looking for yield, so have wanted to add real estate to their portfolio, and this time around, the new-generation products in France are more liquid. Like other OPCIs, Amundi’s Opcimmo fund which Arias and colleague Eric Wohleber, global head of sales for real assets, call ‘the blockbuster’, has 60% direct real estate and 40% invested in liquid assets.

The combination of high inflows into its retail managed funds, together with equity from a gradually growing stable of European and Korean institutional investor clients and partners, has seen Amundi Real Estate almost triple assets under management in just five years: from €8 bn in 2013 to €23 bn by the end of 2017. Between 2015 and 2017 alone the AUM jumped €10 bn, from €13 bn to €23 bn. Gross assets including leverage now amount to €29 bn. That means that the 125-strong real estate team invests equity at an average rate of €3 bn p.a., buying an average €4 bn of assets annually.

New capital sources
Speaking to PropertyEU in February, the pair say there is no sign yet of the rush into French OPCI and SCPI vehicles slowing down. ‘We’re still in recovery rate: the appetite is there,’ Arias says. But, should it slow in France in future - and they believe it will as retail investors reach their personal target levels for real estate - Amundi expects to still be growing, via new initiatives it is launching this year which will develop fresh capital sources and a new business line.

Chief among them are two in the institutional capital market: Amundi’s first pan-European fund for institutional investors; and a debut real estate debt fund. ‘We are launching some new initiatives in the institutional space,’ Wohleber explains, ‘so that even if the retail engine loses speed, we will be more present on the institutional side.’

The evolution isn’t, however, just about having an eye on any slowdown in French retail investor capital; it represents the next phase of expansion for Amundi, offering the expertise in real estate that has accumulated in the seven years since the Amundi Group was created by Crédit Agricole and Société Générale, to new clients.

There could in any case be alternative ways to increase the retail business in future. Along with other managers, Amundi is lobbying regulators to introduce legal frameworks which would allow the sale of its retail products in other EU countries, something which could be agreed this year. ‘We’d like to offer the benefit of a large fund and that pan-European diversification to retail investors in other countries, not just France,’ Wohleber says. The Amundi Group is well set up to benefit after buying Pioneer Investments in December 2016 from UniCredit, which has distribution networks in other continental countries.

Institutional fund
Amundi is targeting €1 bn gross for the closed-end, pan-European fund for institutional investors which launched recently. The fund has the same predominantly core strategy as all the real estate group’s other vehicles, but the target return is higher than the 3% the OPCI expects to deliver this year. ‘As we don’t have the same liquidity constraints, we believe we can deliver around 6% for this new fund,’ Wohleber says. ‘So it is a good alternative to fixed-income products. It targets income not capital gains, and clients who may have invested in their own city but are happy to join a pan-European product for diversification.’

The fund kicked off with two French pension funds investing and €230 mln of property acquired, all located in Germany: two in Berlin (retailer Zalando’s head office and the Steinberger Hotel); and Cottbus shopping centre.  Amundi hopes to raise a total €500 mln of equity this year which will be geared to buy a portfolio of €1 bn in markets such as Paris and Lyon in France, other German cities, Italy, Spain and retail in northern Europe.

The private real estate debt fund got off the ground last September when Amundi hired Bertrand Carrez from Acofi to head it up. Carrez will work with the real estate team to analyse properties it considers financing, but to avoid any conflicts of interest, the fund is run out of Amundi’s €5.5 bn private debt business which is led by Thierry Vallière rather than being part of real estate.

Vallière’s group has a track record in private corporate debt, closing its third, pan-European fund, Amundi Dette Senior FPE III last November with €665 mln of equity from 13 institutional investors. ‘We have some big ambitions for real estate debt,’ Wohleber says.

Buy, hold, manage
Amundi’s real estate investment philosophy is very much to buy then hold and manage the asset. Arias describes the brand as core, long-term investing which seeks to protect and preserve value rather than creating it in the first place. The manager offers investors net returns ranging from 2-3% in the retail funds up to 5% cash-on-cash for institutional and overseas investors who typically use 40-50% gearing.

The group is known for buying large, well-let offices in prime spots in Europe’s biggest western European cities, with this asset class making up about 75% of the €23 bn AUM. Amundi also has in-house expertise in hotels and retail, with dominant shopping centres and retail parks in tier-two towns and cities accounting for 16% of AUM. The hotel portfolio is growing but is currently only 4% of AUM.

Amundi has a sprinkling of other asset types which Arias describes as ‘tests within a diversified fund’. The group co-invested with Primonial in the French manager’s €1.3 bn acquisition of Gecina’s healthcare portfolio two years ago, and it owns a handful of logistics assets as well as residential acquired from buying mixed-use buildings. ‘Logistics, for example, is something I think we should go into, but it is not in our plan for 2018, because of other priorities and because we need to secure things step by step,’ explains Arias.

As yields continue to compress, one ongoing challenge is finding suitable investments where there is value left, within those sector constraints. Another is the danger of overpaying as a direct consequence of being so large: a typical equity investment for an Amundi client is €150 - €200 mln, and the cheques can be twice as big for its club deals. ‘We need sizeable markets, not so much for liquidity but because we don’t want to be market makers,’ he adds.

Spain and UK out of the picture
This pretty much rules out Spain, where the entire Madrid annual office investment volume is only three times the value of Amundi’s Coeur Défense acquisition in the much deeper Paris market. The exception regarding Spain is the new closed-end pan-European fund which will look there because it buys smaller lot sizes. This means Amundi invests mainly in France, Germany and the Netherlands, plus Italy and Benelux, because Arias’ team is not currently investing in the UK for its retail funds. This is for currency rather than real estate fundamentals reasons: ‘The cost of the rollover swap has risen to a level that destroys the value given the returns we’re offering the retail funds,’ explains Arias. ‘And our institutional clients are looking at the UK on their own.’

The next stage of Amundi Real Estate’s evolution is about becoming a credible alternative to the likes of more established players, the CBRE GIs, Invescos or TH Real Estates. This is the rank of large-scale, one-stop shop investment managers that offer investors truly pan-European, long-term investment in property. ‘We will not break in without a fight,’ Wohleber concludes. ‘But it is important to understand where we are - not where we were. We used to be "Amundi, very French, very retail". Amundi is not French anymore; we really are pan-European.’

High-profile offices in capital cities
Amundi has bagged a long list of high-profile buildings over the past 12-24 months (see overview). Trophies include the 159,000 m2 Coeur Défense office complex in Paris, which it bought last October for €1.8 bn from Lone Star after putting together a club comprising its own managed funds, Primonial and and Crédit Agricole Assurances. In November 2017 Amundi closed on the acquisition of The Atrium in Amsterdam, a 60,000 m2 office in the South Axis district, for a price that topped €500 mln.

‘We really changed, probably about two years ago,’ says Arias. ‘Seven years ago when we started, we were probably the last one to be called - by the broker, when an asset hadn’t sold. Now we are one of the first, if not the first, and it’s the owner who contacts us.’

This has clear advantages for Amundi’s investor clients, Arias argues. ‘Being able to execute the transaction with a level of security and comfort is appealing to the seller. We can secure a deal with the seller quickly and before it is auctioned. The result is we can preserve a bit of value and grab a number of basis points....It’s difficult to measure but we believe it - when you’re competing, you know that in each round you lose a bit.'

A corollary was developing the necessary expertise to seize opportunities ‘with conviction’ when offered them and do its own structuring work on transactions. Amundi frequently puts together club deals and joint ventures. ‘It is in our clients’ interest to be partnering with other players,’ he says. Relationships have been built with French investors, like Primonial on Coeur Défense and again this year on another La Défense tower, the Hekla development project.

Amundi funds partnered Finnish pension fund Illmarinen to buy Rocket Tower in Berlin last year and more recently again on the Uber, Spaces and Amazon headquarters, The Cloud, in Amsterdam. Sometimes it takes patience: the deal alongside Korean investors for Amsterdam’s Atrium took a year from start to finish.