4When it launched its debt strategy in 2011, the money for Allianz Real Estate’s European lending deals came from a handful of its parent group’s German insurance companies. Today, with demand for exposure to real estate debt high across the insurance sector, around 20 in-house organisations located across Europe provide allocations.
Before July, loans made would be funded by capital from the balance sheet of group companies located in the country in question. In a bid to make the running of the debt strategy more efficient – and to provide it with the flexibility to pursue its ambitions – Allianz has established a central debt platform, hosted in Luxembourg, through which capital is pooled.
“It gives us the operational framework through which to pursue lending more akin to bank loans,” explains the firm’s head of debt Roland Fuchs. “It creates a single counterparty for our customers, makes it easier to syndicate loans within our group and allows us to pursue more complex financings.”
The first two deals funded through the new platform also hint at the strategic direction Allianz is taking. In August, it provided a senior loan alongside mezzanine debt from Brookfield in a financing, understood to be in the region of £300 million (€337 million), of Blackstone’s revamped St Katharine Docks – a mixed-use marina with some ongoing development and letting risk located near London’s Tower Bridge. The loan included a capex element.
Prior to that, Allianz was the sole lender to outlet retail landlord McArthurGlen of a €281 million loan to refinance the Noventa di Piave Designer Outlet, located a few miles outside Venice, in the latest example of the firm diversifying its lending portfolio into Southern European markets. The deal brings its Italian loan portfolio to around €400 million.
St Katharine Docks, especially, illustrates the broadened lending parameters the firm has adopted. In March, Fuchs revealed to Real Estate Capital Allianz’s plan to add an element of higher-return lending into its portfolio. This, he explained, could account for 20 percent of annual lending volumes and command as much as a 100-basis-points premium to senior investment loans.
In a low-margin real estate market, protecting investor returns has encouraged senior lenders to seek a little more risk. In Allianz’s case, stretched senior and junior debt up to a 75 percent loan-to-value ratio are possible, as well as construction debt of 50 to 65 percent loan-to-cost.
Prior to St Katharine Docks, the first deal under the ‘enhanced debt programme’ was provided in April, when Allianz took a £50 million participation in the development financing of a City of London office building – 80 Fenchurch Street – sponsored by funds owned by Partners Group.
“The overarching feature of what we do in the value-add space is that the property must be prime,” explains Fuchs. “The prime aspect will vary from property to property. For instance, we don’t shy away from letting risk, as long as the location of the property and the operator are super-prime.”
That Allianz’s first two ‘enhanced’ debt deals were done in London dovetails with another strand of the firm’s strategy – gaining exposure to the UK, a market it entered in 2017. Brexit, Fuchs argues, will not dissuade it: “We take a long-term view on our debt positions. We are not loan traders, we are loan investors. London is a global gateway city and, as such, will remain of interest to us over the long term.”
While adapting its lending products to allow it to compete with banks, Allianz continues to lend in the kind of deals most associated with insurers. In March, it was the sole lender in a 20-year financing to Signa Group of the Upper West mixed-use tower in Berlin.
So far this year, Allianz has written around €1.2 billion of real estate debt in Europe, with pipeline deals likely to take it to €2 billion, meaning it is likely to lend more than the €1.9 billion closed in 2017. In total, the firm’s European loan book is close to €7 billion.