Last month, Taiwan-based insurer Cathay Life stumped up £575 million (€805 million; $905 million), before certain adjustments including for unexpired rent-free periods, to acquire The Walbrook Building, a City of London office and retail asset from Minerva, the property developer taken private by real estate fund managers Ares Management and Delancey in 2011.
Cathay’s acquisition of the 440,000 square feet state-of-the-art office and retail space, which features a highly distinctive contemporary curved façade, was announced a little over a week after Fubon Life Insurance Company, another Taiwanese insurer, placed tourist hotspot Madame Tussauds waxwork museum under offer for more than £320 million.
The deal for the waxwork museum, which is owned by leisure group Merlin Entertainment, marks Fubon’s third venture in London real estate and follows on from a £139 million deal to buy London-listed property company LondonMetric’s One Carter Lane in November last year; before agreeing a deal to buy Bow Bells House for £197 million a month later.
Cathay has also shown an interest in buying up London trophy assets in recent years. It made its first foray into the London marketplace when it purchased Woolgate Exchange, the 340,000 square foot office on Basinghall Street in the City, for £320 million last July.
The two investors are part of a growing line of Taiwanese insurers who are acquiring assets overseas after the Taiwanese Insurance Bureau announced that the insurance industry was cleared to invest up to 10 percent of shareholder equity in direct overseas real estate.
“Office buildings in London with higher yields will continue to attract Taiwanese institutional investors. In the case of The Walbrook Building, the yield of 4 percent is higher than the average yield of 2.3 percent for office buildings in Taipei,” said Joseph Lin, managing director, CBRE Taiwan.
“This is one of the reasons that drive insurers to acquire overseas assets. Over the past year, we have seen over $3 billion of outbound capital for trophy assets. On the contrary, the domestic office property market has been stagnant, with only $1.2 billion of transactions in 2014 and no office buildings changing hands in Q1, 2015.”
However, despite the easing of regulatory hurdles, restrictions on Taiwanese insurers looking at overseas real estate remain quite steep. For instance, insurers must have a 200 percent risk-based capital ratio and will also not be allowed to leverage their deals. This would likely encourage wholly-owned assets rather than co-investments.
This means that only a handful of insurers such as Cathay Life and Fubon will be able to meet the government’s requirements. The 100 percent equity requirement also reduces the size of assets they can consider.
So, while Taiwanese insurers have been keen to up their overseas real estate exposure private, equity real estate funds will only see Taiwanese insurers really at the races in off-market deals or having to pay a slightly higher premium at this point. But, the tight regulations exist because this is the Taiwan insurance industry’s first step into direct offshore real estate, and the government wants to be sure it is a safe investment option.
Further deregulation is still a real possibility, especially if these early forays by Cathay Life and Fubon are successful, and as soon as the regulator gets comfortable with the insurance industry investing overseas then restrictions could start to be relaxed. If the rules are relaxed then the $450 billion Taiwanese insurance industry could become an even bigger player in European real estate in the coming years.
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