Allianz pivots towards medical offices in debt portfolio diversification

The property business of the German insurance giant closed a $234m loan in the US healthcare property sector in August.

Allianz Real Estate is increasing its exposure to the US medical office sector, last month originating an $234 million loan on a 27-property medical office portfolio in the US on behalf of a Nuveen joint venture.

Mike Cale, co-head of debt at Allianz Real Estate, told Real Estate Capital the firm’s decision to originate the loan was founded in its long-term relationship with Nuveen, a prominent global sponsor. The other main reason was Allianz’s belief about the long-term performance potential for medical offices, which are typically close to hospitals, include doctor’s practices and provide diagnostic, laboratory, surgical and other services.

“The medical office component is part of what made the deal attractive from an asset standpoint,” Cale said. “Given what happened with the pandemic, we feel that this a long-term sustainable approach to the business. We look to invest through the cycle, and we believe that the medical offices sector is a long-term opportunity.” This belief stems from factors that include the ageing of the US population.

Allianz originated the seven-year loan, which has both floating- and fixed-rate tranches, for the Nuveen US Cities Office Fund. The portfolio is comprised of 27 class A and class B quality medical office properties in 13 states. Around 70 percent of the loan is fixed-rate, or about $163.8 million, while the remainder is floating-rate. The Nuveen partnership acquired the properties in August from Californian private equity firm IRA Capital.

This way of thinking around medical offices is part of the firm’s long-term approach to the real estate business, which Cale said is a more sustainable way of lending.

“We try not to get too caught up in current events, but we do think the office dynamics are different than they were pre-covid. We are trying to assess what that means for us. We certainly haven’t crossed traditional office off the light but will take a hard look at tenancy, sponsorship and equity in the deal,” Cale said.

The firm has committed close to $1.3 billion of capital to 27 transactions this year, already surpassing 2020’s tally of $1.1 billion. One of the loans Allianz completed last year was a $94 million loan on a portfolio of six industrial properties for Nuveen’s US Cities Industrial Fund.

“We are happy to be on pace with where we want to be,” Cale said, noting that the firm originated $2 billion of loans in 2019. “This is more of a normal year for us.”

The firm is seeing extremely high demand in the multifamily and industrial sectors, all for logical reasons, Cale said. “Industrial and logistics properties continue to be at the forefront of what we are looking at. Many institutions have always been under-allocated to the industrial sector,” Cale added.