In through the debt door

AXA and Norges Bank’s new real estate debt platform is likely to see the sovereign fund finally exposed to opportunistic real estate – just not via equity.

The Norwegian Government Pension Fund Global, the world’s largest sovereign wealth fund with some $700 billion of assets, is poised to invest in opportunistic real estate in Europe.

However, before the opportunity fund managers among you print off another copy of your latest PPM and check out the latest flights to Oslo, it probably is worth pointing out that Norges Bank Investment Management (NBIM), the fund’s steward, is not likely to be inking checks for your vehicles anytime soon. Only three years on from state approval to buy property, its equity plays remain firmly in the direct, core arena.

This week, however, did see NBIM ink an agreement to form a European commercial real estate loan co-investment program with its regular bedfellows at the French insurer AXA.  In the latest in a series of investment partnerships, the pair announced their intention to provide large senior loans to commercial real estate borrowers, particularly those buying in the UK, France and Germany. Given that AXA will be managing the program, it might be better to catch a flight to Paris instead.

A conversation with Isabelle Scemama, AXA’s global head of real assets finance, the division responsibility for AXA’s side of the joint venture, revealed that private equity firms indeed are expected to be of the most frequent borrowers from this program – if not, among the largest. To back that, she pointed to her platform’s recent history in the space.

By Scemama’s reckoning, of the €1.8 billion loaned by AXA in 2013 so far, about 50 percent has been to private equity firms. “What we have to offer has really appealed to private equity firms,” she said. And what exactly does AXA have to offer that is of particular relevance to private equity firms – and that other lenders of senior finance do not? “We have the capacity to execute very quickly,” she answered.

According to Scemama, an applicant for an AXA loan can have an approval decision in less than a week and all documentation done and dusted in a month. Opportunistic investors know only too well a deal’s successful execution can hinge on how quickly financing is arranged and, on that note, just how a deal can slip through one’s fingers when things drag.

With a 20-strong dedicated platform that has been operating since 2005 and working with third parties (there are now 33 investors committing equity to it, not including NBIM) since 2010, AXA has a head start on many of its insurance peers, which are today clamoring for market position. Having AXA Real Estate, its €46 billion of assets and its 500 staff from which to obtain market intelligence can’t hurt either.

So, if large-scale senior debt – this program has placed particular emphasis on loans of up to €600 million – with five-year to seven-year maturities and spreads between 200 and 500 basis points (numbers from AXA’s recent loans) sounds good to those opportunistic players out there, that’s what AXA says its Norges partnership will offer as well.

Plus, you’ll be among the first to be able to say that the world’s biggest sovereign wealth fund is invested in your opportunistic deal – even if you are being a bit cute with the truth.