Allianz Real Estate, the property investment business of German insurer Allianz, has chosen the London office market as the setting for its largest single-loan European debt transaction to date.
The lender has provided £400 million (€440 million) to family-owned investment firm Lazari Investment. The 10-year, fixed rate loan will finance a portfolio of five freehold buildings containing 630,000 square feet of prime offices, located across central London.
The deal has been closed amid much debate in the real estate industry about how covid-19 will shape future demand for office space. However, Roland Fuchs, head of European debt at Allianz Real Estate, argued that the transaction was ideal for Allianz’s pan-European debt fund, which pools capital from within the group’s insurance companies as well as third-party investors and has €3.4 billion in assets under management.
“It fits perfectly into our pan-European strategy due to the quality of the investor, assets and location, combined with the long-term partnership that we intend to build up with Lazari,” Fuchs told Real Estate Capital.
He added that further appeal lies in the diversification of the portfolio as well as its size. “The loan is cross-collateralised across five different buildings, all with various leases and good quality credit tenants, which will help weather any volatility in the London office market.”
Tenants include online retailer ASOS, drinks producer Diageo and the UK’s National Health Service. The facility reflects a relatively conservative loan-to-value ratio of between 50 and 60 percent.
Although many London office workers are still working from home, Fuchs said he remains confident in the office sector’s prospects. “The debate between working from home versus working in the office is becoming less binary,” he said. “Buildings need to cope with those possibilities that fall in between and provide solutions for flexibility and partial working from home.”
While office schemes were historically designed with fitting the maximum number of people in a given amount of space, maximising space per occupier will now be a priority due to the pandemic, said Fuchs.
He added: “Going forward, offices must be modern, ‘green’ and adaptable to tenants’ needs. Proximity and location are still relevant factors despite covid-19, because those buildings need to be easily accessible.”
The UK represents a growth area within Allianz’s real estate debt portfolio. The insurer closed its first debt transaction in the UK five years ago, as part of a pan-European portfolio financing, but has made the UK a key focus of its lending strategy in the past two years. The UK now accounts for just over 10 percent of its portfolio, which Fuchs said is on track to reach close to €10 billion by the end of the year.
Allianz is targeting between €1.5 billion and €2 billion of lending for its pan-European strategy.
Allianz is not alone in opting to provide finance in the London office market. On 16 September, ICG Real Estate, the property arm of London-based asset manager Intermediate Capital Group, announced that it had issued a £90 million senior loan for an office portfolio in the city of London, owned by UK investor and developer Maurice Investments.