Major senior lender eyes opportunities for well-priced mezz investment
AXA Real Estate, Europe’s largest non-bank senior lender, is considering entering the mezzanine finance market. The asset manager has a €7.9bn property and infrastructure debt business with a broad base of clients, including AXA Insurance, and has so far invested mainly in senior debt.
Charles Daulon du Laurens, AXA Real Estate’s head of investor relations for real asset finance, said no decision had been taken yet, but the business had the capital and the flexibility to make mezzanine loans if the opportunity was there. “We are monitoring the market very closely to see whether it would make sense to be in other parts of the capital stack to senior,” he said.
If AXA made mezzanine loans it would be in deals where it did not invest in the senior debt. “The team has identified recent situations where senior debt is wrongly priced (for us) but the mezzanine could be tranched and well priced. If we see more of these, we may invest,” he said.
It would not be via a whole loan strategy, where clients with a senior loan risk-return strategy and others with a higher-risk return strategy invest against the same asset.
AXA set up its lending arm in 2005/06 and initially made very few senior loans because margins at that time were low. Instead, between 2007 and early 2009 the team invested in triple AAA CMBS bonds which were yielding good returns. “One characteristic of this platform is that it has always tried to be agile,” Daulon du Laurens said.
He stressed that AXA is still finding plenty of senior debt opportunities that meet its required risk-adjusted returns. “Our size and execution capacity means that we have a competitive edge to optimise the return we get for the risk in an increasingly competitive market. Increasing supply is compensating for increased competition. We have reviewed €15bn of loans in the year to date, compared with €35bn for the entire 2013.”
In March, AXA took a €318m participation with BAML in a €935m loan for Lone Star’s acquisition of Coeur Défense in Paris. BAML plans to syndicate most of its portion. The two underwriters are believed to have originated the loan at around 100bps more than the offered participation.
Danish funds hand AXA €485m mandate
AXA Real Estate’s latest €485m senior debt investing mandate from five Danish Pension funds grew out of a decision to invest in European senior loans by Sampension over a year ago. “The conversation evolved towards a few Danish pension funds gathering a potentially larger sum, as they are like-minded investors,” Daulon du Laurens said.
The other four funds are AP Pension, TDC Pension, JOP and DIP, and the five have set up the Kronborg Fund. The vehicle will invest in large senior loans alongside other AXA Real Estate debt clients, targeting office, retail, logistics and hotel investments, mainly in the UK, France and Germany. M&G Investments and Agfe are also thought to have pitched.
The co-investment opportunity, and hence the size of loans AXA can make for investors, “was key” to the Danish pension funds’ decision, said Daulon du Laurens.