Allianz Real Estate, the German insurer’s real estate asset and investment manager, is targeting to reach €1 billion in equity commitments in China by the end of 2018.
Rushabh Desai, chief executive for Asia-Pacific at Allianz Real Estate told PERE that the insurer’s current exposure to China amounts to €800 million.
The firm’s investment exposure has been bolstered by its latest deal in China. In early July, the firm announced the all-cash purchase of its first office asset in Beijing from joint sellers, the Shanghai-headquartered real estate investment manager KaiLong and investment banking, securities, and investment management firm Goldman Sachs.
Desai told PERE that the 338,374 square feet building was purchased for around $185 to $195 million at a “core-plus” yield.
“Our ability to close an all-cash transaction and not requiring financing as a precondition positions us uniquely in terms of competition in the Chinese market,” said Desai, explaining the deal’s financing. “We are a long-term income or yield investor, not necessarily short-term total returns investor, and we also have the ability to do an all-cash transaction like this.”
The asset is located in the Zhongguancun Software Park in the Haidan District and is fully let to Chinese technology companies.
“We went with a fully stabilized business park with a concentration of international and domestic IT companies versus going to an upcoming location because it is our first office investment in Beijing,” Desai added. “We will also be open to office investments aligned with the new economy; our investment thesis always relies on getting the right micro-location and operating partner to asset manage, whether it is internal or external, getting the right quality of asset so it can outperform in any part of the cycle.”
China has been one of the key investment markets for Allianz. Asia-Pacific as a whole is expected to take up 10 percent of the insurer’s exposure to the asset class globally. Within this, the firm aims to allocate 40 to 50 percent to China. According to Desai, that share is currently close to 45 percent.
The firm already has exposure to the office sector in Shanghai, where Allianz Real Estate in August 2017 invested alongside the Singaporean conglomerate Keppel Capital to purchase the asset SOHO Hangkou for $525 million. The two investors each own a 30 percent co-investment and has also invested in the Alpha Asia Macro Trends Fund III, a closed-ended, value-add vehicle that owns the remaining 40 percent stake in the office and mixed-use development asset.
Logistics is Allianz Real Estate’s other preferred asset class in China, and a strategic focus throughout Asia-Pacific.
“In certain aspects, some Chinese cities have skipped the organized retail and gone straight into e-commerce,” said Desai, explaining the appeal of logistics. “Whether the [growth] numbers are right or wrong, irrespective I think the size of the market is so big in terms of e-commerce, and the penetration levels are still very low, so there is a lot of headroom for e-commerce to grow.”
And Allianz Real Estate has plenty of leeway to grow its Asia-Pacific exposure. By the end of December 2017, the global exposure to real estate was approximately €56 billion, of which €2.1 billion, or 3.75 percent, was in Asia Pacific, a noteworthy distance from the target of 10 percent.