Allianz Real Estate and Columbia Property trust form joint venture

Allianz Real Estate has formed a joint venture with US REIT Columbia Property Trust to acquire Class A offices in the US.

Both groups have contributed three properties to the joint venture that have a combined value of $1.26b. Columbia contributed two of its properties in the San Francisco Bay area, including University Circle, a 451,000 sq. ft. office complex in Palo Alto valued at $540m, which Columbia acquired in 2005, and 333 Market Street, a 657,000 sq. ft. office tower in the Financial District valued at $500m, which Columbia acquired in 2012. Allianz now owns a 22.5% interest in University Circle and 333 Market Street, while Columbia owns 77.5% and will continue to oversee property management and leasing at these two properties, as well as management of day-to-day operations of the joint venture.

‘Our investment in this joint venture achieved our immediate goal of acquiring premier office assets in core locations on the West Coast,’ said Christoph Donner, chief executive officer of Allianz Real Estate of America. ‘Over the long-term, the opportunity to further diversify and expand our national geographic exposure in the US office sector and to form a strategic partnership with Columbia Property Trust is a win-win situation. It is rare to find an investment partner of their calibre with objectives so closely aligned with ours.’

Within the next twelve months, Allianz will increase its ownership interest in both University Circle and 333 Market Street to 45%, thereby adjusting Columbia’s ownership percentage in these two properties to 55% and self-funding the venture for Columbia.

However, how big the joint venture could become is still up for grabs. ‘It’s hard to set a target regarding how big it could become because we must be mindful of where we are in the market cycle,’ Donner told REFIRE. ‘We also don’t have a set target because we’re both opportunistic and very disciplined in terms of the quality of the assets, tenants and markets we invest in. At this point, the market is still pretty hot.’

Allianz’s US book totals around $14b, of which around $11b is debt, according to Donner. In terms of real estate, it is targeting 24/7 cities. ‘Our joint venture with Columbia has given us exposure to the West Coast, where we didn’t have as much exposure as we would have liked in cities such as San Francisco and Palo Alto. Typically, in a joint venture like this, we are looking at an equity investment of $150m or greater,’ he said. ‘The return needs to be relatively attractive compared to the fixed income market. We take hedging currency costs into consideration, too, as well as the tax structure. We’ll take some leasing or refurbishment risk in a core building but not as a value-add play or as a substantial re-positioning of an asset.’

Allianz, for its part, contributed 114 Fifth Avenue to the joint venture. The 352,000 sq. ft. office building in Manhattan is valued at $220m and Allianz has owned it since 2015 along with its partner, L&L Holding Company. Fully-leased, the landmark office asset is located in the vibrant Flatiron District of Midtown. At 114 Fifth Avenue, Columbia and Allianz each own 49.5%, while L&L retains its general partnership stake and will continue as the property management and leasing agent for this Midtown South building. Allianz was advised by Cushman & Wakefield of New York, NY on 114 Fifth Avenue.