BLUEPRINT: Upping the ante

Allianz Real Estate, the property investment arm of one of the world’s largest insurance companies, Allianz, is already a real estate heavyweight. The Munich-based investor has €45.4 billion of property assets under management across its real estate equity investment and lending businesses.

Yet, growth is still the message from Allianz Real Estate’s chief executive, François Trausch, who tells PERE he has a roadmap to grow the investor’s AUM to €60 billion by 2020: a formidable task made tougher given Allianz’s annual internal rate of return target of 4-6 percent.

“Real estate is an important, lasting and essential component to any insurance company, especially today in the low interest rate environment for a group that has a large bond and equities portfolio. Having alternatives where real estate plays a big part is a strategic angle for Allianz, and that is not going away,” he says, flanked by his recently appointed head of Asia-Pacific, Rushabh Desai, in a conference room at Hong Kong’s Grand Hyatt hotel.

Trausch is himself a recent addition to Allianz Real Estate’s evolving senior management team having taken charge at the start of the year. Prior to this role, he was chief executive of Asia-Pacific at GE Capital Real Estate, the real estate business of the US conglomerate, where he was responsible for 200 real estate professionals based in Japan, Korea, Australia, and Hong Kong, and for managing $9 billion of investments. The Frenchman comes with significant European experience, too. Prior to his time in Asia, he had spent 15 years with GE in Europe in various senior real estate positions. Before GE, he worked for Tishman Speyer in New York and Berlin, and for Goldman Sachs in London.

He replaced the outgoing Olivier Piani, also a former GE alumnus, although he worked as European chief executive building its pan-European real estate portfolio.

“The handover comes from a very skilled person who knows the industry very well to someone with the skills to take it forward and steer it for years to come. It was a very well managed transition,” says Henrie Kötter, chief investment officer at Hamburg-based retail specialist ECE Projektmanagement.

ECE has worked with Allianz Real Estate since taking over management of the investor’s shopping center assets in 2008, and has since partnered the investor on joint ventures as well as act as an operating partner for many of Allianz’s retail assets. 

Trausch and Desai are not the only new faces at Allianz Real Estate’s top table, either. Last July, Barbara Koreniouguine joined as chief executive of Allianz Real Estate France from BNP Paribas Real Estate.

For the executive team to meet the sizeable task of growing Allianz Real Estate’s asset base by nearly 25 percent in just over three years, the investor will look across the globe when writing checks.

“We want to get to 5 percent [of our AUM] for Asia; today we are closer to 1.5 percent. For the US we are closer to 10 percent, but want to grow get that to 15 percent,” Trausch says. “Getting to these figures will have its challenges. Look at Asia, for example; growing a business from close to zero to €3 billion is sizeable.”

It’s even more significant when considering Allianz Real Estate’s cautious approach to investing in Asia. “We will take a step-by-step approach instead of trying to go big all of a sudden,” says Desai. “The markets in the region work at different paces, so it takes time to get used to them and figure out how to navigate through them.”

The enhanced focus on Asia is the reason Desai joined the firm. Based out of the investor’s Singapore office, he is tasked with “growing the Asia business.”

The new Asia head was previously managing director for Asia-Pacific real estate markets for Lone Star Funds. He spent around nine months working in the firm’s Tokyo office and around 12 years with GE in several senior positions, including head of strategy and planning, chief financial officer, and head of business development for the region.

“What we are doing today in Asia is fund investments,” says Trausch. Allianz kick-started the strategy with a $150 million commitment to PAG’s latest core-plus vehicle in Asia.

“They have always had a presence here, but with the aspiration to enhance what they have done in Asia. Their activity to date has being quite modest, given their global scale, but there is a transition occurring, driven by the general investment environment globally, and the change in leadership,” says Broderick Storie, partner at PAG. “With François and Rush coming onboard, given their respective backgrounds, and the local team here, that provides a clear signal as to their commitment and desire to increase what they are doing in Asia.”

For the US, Allianz is already further down the line and Trausch says that among European insurance companies it is probably the one with the strongest presence in the country.

“Historically, Allianz has a big insurance business in Minneapolis and that creates a natural investment funnel,” he says.

Allianz’s biggest exposure in the US is on the debt side. The group manages €8.9 billion of US loans from a total global debt portfolio of €13.1 billion. “Lending is a good business for insurance companies these days. Banks are having some issues that insurance companies don’t,” says Trausch. “If you are willing to write big tickets then borrowers don’t have to syndicate. That’s where we come in.”

On the equity side, Trausch says he wants to develop through fund investments in specific asset classes, such as student accommodation or multifamily, or through club deals and joint ventures. The fund insurer formed a JV with the Rudin Family for the recapitalization of One Battery Park Plaza, a class A, 35-story office tower in Lower Manhattan. Under the terms of the joint venture, the Rudin Family will retain a majority ownership interest in the 870,000-square-foot office tower and will continue to serve as the asset and property manager.

Allianz also acquired a 44 percent stake in 10 Hudson Yards for $420 million, the first tower completed in Related Companies and Oxford Properties Group’s mixed-use Hudson Yards development on Manhattan’s west side. A limited partnership that includes Allianz, Related Companies, Oxford Properties Group and institutional investors advised by JPMorgan Asset Management now owns the property.

The insurer also purchased a 45 percent interest in Park Place joining west coast real estate investment manager LBA Realty and Principal Real Estate Investors in a JV. Park Place is a premier mixed-use asset totaling approximately 2.7 million square feet of office and retail property. Allianz has acquired a stake in the six assets that make up the office campus, the 3121 and 3333 Michelson office towers, and the retail center. In total, the Allianz investment spans 11 buildings encompassing approximately 2.2 million square feet.

“The addition of Allianz into this joint venture was a positive for the owners of Park Place. We have worked together on other investments and commercial mortgage financings,” says Phil Belling, managing principal of LBA Realty.

“They have a strong ability to execute on complex transactions and a solid understandign of the market fundamentals.”

Funds for the future

With the plan to grow in both the US and Asia alongside investment managers it is no surprise to hear both Trausch and Desai describe Allianz as an active limited partner.
“We will look for managers with scale so we can grow with them and do co-investments and sidecars. You choose the manager not just for performance but also for the partnership you can build,” says Trausch. “It’s a good way to grow. In markets globally that are complicated you have to grow in a methodical and prudent fashion.”

Partners of Allianz agree: “We have a very active dialogue and that is something I expect is typical for Allianz. They have a very good understanding and for us their involvement is a very positive thing. As a service provider you could say you want someone who doesn’t call you and won’t bug you, but we are from the side of wanting a knowledgeable partner,” says ECE’s Kötter.

“You need investors that think outside of the Excel sheet and understand the product. They are very hands on but they understand why they have a service provider. They are a great sparring partner for us on our ideas.”

Trausch describes Allianz’s fund management team as “like a business line.”
“We have close to €5 billion with fund management. It’s all our fund management team does, select fund managers. It gives us an advantage that we are doing this so regularly,” he says. As part of the process Allianz will systemically interview other groups which have invested with a fund manager prior to a commitment, and Trausch says he looks at this very carefully.

Allianz typically writes checks in the €100 million to €150 million range and first-time fund managers are off the table for the insurer.

“We are a bit different from other investors because we are also an operator,” says Trausch. “We actively engage with the manager. I usually show up for the investor meeting to see management. I can’t do it for all of our investments as we have more than 20 relationships, but I want to feel comfortable and also let the manager know we are taking our position very seriously.”

Trausch says he wants to increase the percentage fund commitments within Allianz’s holdings. “Today it maybe takes up 13 percent. I want that to grow to around 20 percent.”

This forms part of a broader plan to diversify the group’s exposure, he adds.
“If you look back 10 years, Allianz was mainly an office investor. We wanted to expand into other asset classes and these usually require more specialized skills and know-how, so going through a fund manager makes more sense.” For instance, in May 2015, Allianz backed FTSE-listed UK student housing developer The Unite Group’s private Unite UK Student Accommodation Fund to fund new acquisitions and reduce leverage. The fund, which the London-based company established in 2006, is Europe’s largest non-listed real estate fund purely focused on student accommodation investment assets.

Top down

In branching out into new asset classes and geographies Allianz tends to adopt a top-down approach and selects asset classes which benefit from broader investment themes.
“Let’s say the theme is stabilized yield – very relevant in this environment – and then you look at Asia and the consumption demand and growing e-commerce. Logistics, retail, and outlet malls all play into that,” says Desai.

At the start of the year, Allianz acquired 100 percent of the shares of the company owning Central Shopping Center in Bratislava for around €175 million. It was the first real estate investment for Allianz in Slovakia and aligned with its push into acquiring shopping centers. Central Shopping Center opened in October 2012 and comprises around 430,000 square feet of lettable area, of which 339,000 square feet relate to retail uses. Another 25,000 square feet are used by a gym and 27,000 square feet go to food services.

Allianz is also seeing returns in European logistics. In March, the group bought into a portfolio of logistics properties developed by Belgian real estate group VGP in Germany, the Czech Republic, Slovakia and Hungary. The transaction cost about €500 million, and the firms plan to acquire more assets to grow the joint venture to more than €1.5 billion. The portfolio comprises 27 completed buildings and seven that are currently under construction, scheduled to be completed in the next six months.

“We may eventually buy our partner out and end up with a big portfolio; it’s a way to build your asset base,” says Trausch.

And while this is not the traditional direct real estate investing that one would typically associate with Allianz, Trausch says the firm will be finding more unique routes to new assets. “We are a long-term investor so the end product has to be core. That doesn’t mean from time to time you can’t manufacture to core or go into something that is not core where the outcome is a long-term hold,” says Trausch.

The prime example of Allianz taking a different approach is in its September 2015 acquisition of a €1.85 billion portfolio of loans from Ireland’s National Asset Management Agency alongside London-listed retail property REIT Hammerson. The 50-50 joint venture saw the pair purchase the ‘Project Jewel’ portfolio of loans secured against retail assets in Dublin, including Dundrum Town Centre, a well-known shopping center in the city.

Opened in 2005, Dundrum, which has 1.5 million square feet of space and is considered by some as a super-prime European shopping center, has 120 shops, 38 restaurants, a 12-screen cinema and 3,400 car park spaces. It is located in the affluent southern Dublin catchment.

Yet, the purchase could be considered risky because the debt in the portfolio stemmed from a number of underlying borrowers, each with differing economic interests and potentially differing desired outcomes. By July, Allianz was able to secure ownership of the Dundrum retail asset.

“That’s quite a path to go from the debt to the asset, which we together with our partner Hammerson were able to do successfully. It was important to give confidence to Allianz that when we suggest a more complicated approach to the assets, which is maybe new to them that it works. Now we have proven that, I think we will be able to continue to do more complex deals,” says Trausch.

“Five years ago, it would have been difficult to imagine Allianz doing a deal like that. In the meantime, we are ready to do it and our teams have become more sophisticated and that means we can make these plays and know what we are getting ourselves into and have the comfort that we can execute.”

Fierce competition from all over the globe for core assets will mean that Allianz will likely take on more of these complicated deals.

In order to grow its asset base to €60 billion in three years it will need to pull a few of them off.

Allianz Real Estate
Headquarters: Munich
Equity AUM: €32.3bn
Debt AUM: €13.1bn
Leadership: François Trausch, chief executive; Rushabh Desai, head of Asia-Pacific; Christoph Donner, chief executive, Americas; Olivier Téran, chief investment officerAllianz Real Estate
Headquarters: Munich
Equity AUM: €32.3bn
Debt AUM: €13.1bn
Leadership: François Trausch, chief executive; Rushabh Desai, head of Asia-Pacific; Christoph Donner, chief executive, Americas; Olivier Téran, chief investment officer


Game time: word association

The quickfire thoughts of François Trausch
PERE: Risk – Trausch: Manage
PERE: Pricing – Trausch: Disciplined
PERE: Politics – Trausch: Navigate
PERE: Core – Trausch: Core to our strategy
PERE: Leverage – Trausch: Moderate


Investing around the clock

Allianz is intent on upping its exposure in what its chief executive calls ‘24/7 cities’
Allianz is underexposed to some of the world’s largest and most liquid real estate markets, says Trausch, despite a global direct and indirect property investment portfolio of €32.3 billion.

“When I came in, I thought the exposure to 24/7 cities was on the low side. We had good exposure in Paris, Frankfurt, and Berlin, but none in London and not much in New York and the Asian cities.”

Allianz is attempting to address this imbalance and has already closed on two large deals in New York.

The investor acquired a 44 percent stake in 10 Hudson Yards, the first tower completed in Related Companies and Oxford Properties Group’s mixed-use Hudson Yards development on Manhattan’s west side for €375 million.

It also formed a joint venture partnership with the Rudin Family for the recapitalization of One Battery Park Plaza, a Class A, 35-story office tower in Lower Manhattan. Situated between the Battery and Whitehall Street, One Battery Park Plaza is widely acknowledged as one of Downtown’s most accessible and visible addresses.

And in spite of the turmoil caused by Brexit, Allianz is also looking closely at London.

“Brexit has allowed the market to pause and so gives us a chance to evaluate how to enter the market. We missed the last cycle but now that it has stabilized we can expect a correction, which means the next 18 months will be a really good time to look at the market,” Trausch says.