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Allianz’s Fuchs: ESG was behind decision to do first PRS loan

The firm’s head of European real estate finance explains why the opportunity to finance 10 George Street in London’s Canary Wharf tempted it into its first private rented sector residential loan in Europe.

Allianz Real Estate provided a £140 million (€161 million), 10-year refinancing loan earlier this month to UK landlord Canary Wharf Group for 10 George Street, a 224,039 square feet residential and retail property in London’s Canary Wharf business district.

The financing was the first time the property arm of Munich-based insurer Allianz had provided a loan, in Europe, against a standalone asset in the private rented residential sector – a property sub-sector which has attracted significant investor and lender attention in recent years in the UK.

According to Roland Fuchs, Allianz’s head of European real estate finance, the decision to write the loan was less a push into PRS financing, and more due to a combination of 10 George Street’s credentials – including its blue-chip sponsor, location in a business district with a growing quantum of housing, and, crucially, the asset’s sustainability standards.

“The building ticked our investment ESG [environmental, social and governance] key performance indicators, which we have now reinforced,” Fuchs told Real Estate Capital. “The fact it matched most of the sustainability criteria we have established for our debt portfolio, reinforced our decision to finance it.”

In addition to having an ‘excellent’ score under the BREEAM sustainability assessment method and it being fully compliant with the CRREM carbon reduction pathway for residential buildings, Fuchs explained the 35-floor high-rise building includes photovoltaic power collection, which converts the sun’s radiation into power, and automatically controlled high-efficiency lighting.

The property’s ESG standards also enabled Allianz to issue the debt facility as a green loan. According to the Green Loan Principles, published by the Loan Market Association in 2018, such loans must be allocated to financing the acquisition, development or refurbishment of assets that meet the finance industry body’s definition of ‘green’,.

The European private rented residential sector’s features and prospects appeal to Allianz, explained Fuchs, but the relatively small size of deals in the sector compared to other property types, had often been a deterrent to the firm. “PRS schemes tend to be smaller than 10 George Street, which often does not fit our loans size targets,” he said. “Our mandate targets lending opportunities from €100 million to €500 million so, the size of this scheme and financing suited us.”

The transaction, therefore, offers Allianz exposure to what Fuchs described as a “dynamic market”. Although PRS remains a relatively small part of the UK residential market, he said, it is a fast-growing sub-sector. “The sector is increasingly becoming a complementary offer in the overall residential market, which is now gaining momentum, particularly in the biggest European metropolitan cities, where mortgages for new homebuyers are increasingly unaffordable and, therefore, unattractive.”

Fuchs added: “PRS also offers occupiers the possibility, during a period of their life, of not having to commit to a 15 years’ mortgage. This scheme’s facilities, location, and features make it particularly attractive for young professionals and families, who may not have either the means or the willingness to buy a house.”