EUROPE NEWS: Swiss army

In March, Zurich Insurance Company, which has a real estate portfolio of $12 billion, hired Allesandro Bronda from Aberdeen Asset Management where he was global head of property investor solutions. In his first interview with PERE, the new head of real estate strategy explains how Zurich is an example of an investor looking at new markets for core, income-producing property that prefers to stay away from funds.

PERE: What is the mission at Zurich in terms of investment in various asset classes, and how does real estate fit it?
AB: Zurich has a systematic approach. Our mission is to achieve ‘superior’ risk- adjusted returns relative to the group’s liabilities. The group’s current asset allocation to real estate is 5 percent. Real estate has attractive risk-adjusted returns, tends to have a low correlation and thus is an excellent risk diversifier to other asset classes. In addition, real estate generates long-term stable income. As a consequence, Zurich aims to continue to invest directly in properties in good locations and to increase the global diversification of its real estate portfolio.

PERE: Is real estate put into an ‘alternatives’ bucket or some other classification?
AB: Yes, together with private equity and hedge funds.

PERE: How is the overall real estate strategy determined – is that down to you alone or do you have to fit in with an overarching investment strategy determined by someone else such as a global head of macroeconomics or something similar?
AB: Our real estate strategy takes a top down view on where best to allocate by country, city and sector and considers our internal macro view, but also regulatory constraints and the ability to implement at local level.

PERE: What did the real estate portfolio of Zurich look like when you joined this year?
AB: Our real estate portfolio currently amounts to approximately $12 billion, equating to around 5 percent of our assets. Our three largest portfolios are in Switzerland, the US and Germany, where we have a combined exposure of about $9 billion.

PERE: How will the real estate portfolio change and how will you change it?
AB: We plan to significantly increase our real estate allocation. Apart from planning to increase our exposures in the US, UK, Switzerland, Germany, Chile, Malaysia, Italy and Spain, we are also considering other markets such as Australia, Japan and the broader Eurozone.

PERE: Can you provide an example of a recent deal?
AB: We acquired an office portfolio in Barcelona from the Generalitat de Catalunya for €201 million in July. It consisted of 13 government-let office buildings in Barcelona, as part of a sale and leaseback transaction. Zurich Insurance Group won a competitive tender process to acquire the portfolio. Following the acquisition, Zurich owns a portfolio of assets in Spain of around round €480 million, of which € 321 million are in Barcelona. Under the terms of the transaction, the Generalitat will continue to occupy the buildings having signed 13 new leases providing for a weighted average unexpired lease term of 13.5 years. Seven buildings will have a 20 -year contract, while the remaining six buildings will have a lease contract duration of five.

PERE: It is rumored that Zurich has been looking to appoint an investment manager in the US – what is the position?
AB: As a matter of policy Zurich does not disclose publicly any information about its third party service providers.

PERE: Lastly, what is your view on European real estate and on investing in funds as opposed to doing things directly or in small clubs?
AB: In Europe we continue to see good opportunities in the UK, Germany, Switzerland, Austria and Spain. For Europe as a whole we are expecting further yield compression and a gradual improvement in occupier demand. We have a preference for investing directly as we like to have control over the assets we acquire.