The decision by Allianz Real Estate to invite external investors to commit capital to its property lending strategy represents the natural next step in the growth of the business, following the establishment of a centralized funding platform, the firm’s head of European debt has told PERE sister publication Real Estate Capital.
Speaking at the EXPO Real fair in Munich, Roland Fuchs argued the move is not designed to capitalize on the recent rise in investor demand for real estate debt, but rather represents the logical growth of a business now run through a Luxembourg-based platform, created initially to pool capital from Allianz group insurance companies.
“This is not a market-driven move – it’s a continuation of our strategy,” commented Fuchs.
“We identified the real estate debt opportunity in the US 30 years ago and widened it in 2011 to Europe. In the first instance, we needed to build long-term experienced teams, a track record and a European loan book. Now, we can share that with potential partners.”
Since 2011, the business has grown to a European loan book of €6.8 billion, as at mid-2018. Internal governance and a ratings system have been developed, initially to create a standardized structure for group insurance firms to invest with the business, Fuchs explained: “The picture is complete, with the central investment platform in place and we are ready to leverage that infrastructure.”
Prior to the establishment of the Luxembourg platform this summer, loans made by Allianz’s real estate business were provided directly from the balance sheets of group insurance companies within the corresponding country to the property being financed.
Earlier this month, Allianz Real Estate chief executive Francois Trausch told PERE that the firm planned to begin raising capital from third-parties for the first time in its history, through its debt strategy. Trausch said the fundraising would begin in mid-2019, with as much as $300 million expected to be raised by the end of next year.
Fundraising is to be conducted on an indefinite basis, with no target volume confirmed by the firm.
The debt fund was launched primarily to better serve internal clients – of which around 20 currently invest – although the new structure enables Allianz to offer its debt capabilities to external investors. In contrast, Allianz has no immediate plans to launch a fund for its equity investments, meaning joint ventures and direct equity holdings will remain the focus for in-house clients, of which Trausch told PERE 38 currently invest.
“We will not reduce the investment from Allianz group investors; this is not a replacement strategy, it is supplementary,” commented Fuchs, on the debt strategy. “Appetite from within the group remains strong and the Luxembourg platform was designed to bring in further Allianz investors, especially the smaller companies.”
Allianz plans to deploy in-house capital into debt deals on a co-investment basis, matching third-party contributions, Fuchs explained. The Luxembourg platform is a perpetual fund, within which capital can be raised in compartments and absorbed into the wider fund on an ongoing basis.
Compartments currently exist to cater for investors with differing investment needs, meaning the structure can be grown to meet third-party investors’ requirements: “It’s a flexible structure, which can be adapted, depending on investor appetite,” said Fuchs.
Third parties will be able to invest in the firm’s core lending strategy, as well as the ‘enhanced’ lending strategy launched this year, which allows Allianz to take an element of development and value-add risk, against core properties, in a bid to drive higher loan pricing.
“Letting in potential partners as co-lenders does not mean a change in strategy,” said Fuchs. “This remains a prime lending strategy. We are providing access to supplementary third-party investors we deem like-minded with a long-term investment view.”
Allianz is in the process of identifying potential investors, most likely insurance companies and pension funds lacking internal debt origination infrastructure, Fuchs added.
By the end of the first half of 2018, Allianz Real Estate’s global debt portfolio stood at €17.6 billion. Since the start of 2017, the firm has provided €2.6 billion of European and €2.5 billion of US debt.