AXA hatches €1.5bn business plan for alternatives

AXA Real Estate Investment Management says it has launched a new business to double its investments in alternatives to €1.5bn in value over the next three years in response to growing demand for alternatives.

Investors are increasingly demanding exposure to alternative assets such as healthcare, student accommodation and police stations, according to AXA Real Este Investment Managers, the real estate investment management arm of French insurer AXA. In response, the firm announced today it plans to increase investments in these niche areas to more than €1.5 billion in value.

AXA revealed it has created a new “business unit” to add to the €750 million of alternative assets that it already manages via its first dedicated fund called Alternative Property Income Venture (APIV), which was launched in 2007. The new business, which expects to raise capital through new mandates and a second fund, is to be managed by Dan Bowden, the fund manager for APIV.

AXA said it had taken the decision to double alternative assets under management because of increasing investor demand for these sorts of properties.

“AXA Real Estate believes that growing investor demand for alternative real estate is due to the qualities of these assets and their long term, often indexed-linked and government or government-backed leases, which are typically for terms of 25 years,” it said. “This is demonstrated by the increasing liquidity in the market for alternative real estate assets, where transaction volumes of €1.5 billion and €2.6 billion were recorded in 2010 and 2011 respectively, surpassing the €1.3 million seen in the 2007 boom market.”

The company went on to explain changes in demographics, regulations and government spending had created a “needs versus wants” alternative real estate investment strategy where AXA would target sectors in which occupation demand and income growth were driven by “non-discretionary” factors. Examples include care homes for the elderly, where occupational demand is driven by Europe’s aging population, and student accommodation where a demographic ‘bulge’ has led to increasing demand for university places amid a weak youth employment market.

Bowden said: “We have detected a clear shift from sophisticated investors into alternative real estate, attracted by the capital resilience, highly visible income returns, which are often indexed linked income flows, and the continuing occupational demand.”

Last year, the APIV fund invested in 28 petrol stations in northern Spain in a €55 million sale and leaseback deal with Spanish retailer, Eroski. A deal the previous year saw AXA buy two Swedish properties let to the Kalmar County Police and Swedish Prosecution Authority on long term leases. In 2008, it bought 57 Accor hotels in France and Switzerland and a portfolio if Marseille clinics.

Bowden added that alternative real estate had a “real potential” to grow as a product of institutional quality in Europe, following the US, where the combined alternatives REIT market capitalisation is three times larger than its US office REIT counterpart.