Competition for prime assets forces Allianz to review strategy

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German insurer Allianz Real Estate has had to radically review its strategy of reaching €30bn in property assets under management by the end of this year, and has put that target back by four years to 2018. According to CEO Olivier Piani in a recent interview, the competition from equity-rich investors such as sovereign wealth funds and other insurers has driven up the level of prices in prime property to unattractive levels.

He also suggested that Allianz Real Estate would consider investing in property stocks for the first time, similarly to the strategy of the parent company, and would be seeking board approval to invest in listed stocks in the eurozone. “There are opportunities in some cases to invest in real estate not directly, not through loans, but through stocks,” he said.

Piani joined Allianz in 2008 with a mandate to boost the insurer’s real estate investments. While insurers have upped their spending on European commercial properties in 2013 by 21%, according to Jones Lang LaSalle, but Piani said in his comments that “It’s difficult for us to find more than €2bn of investments year after year. There are a number of new players in the market, sovereign-wealth funds and the like, who pay more than we would be willing to pay.”

Last year Allianz invested €2.3bn and sold €500m of property last year, bringing its total of property assets under management to €23.5bn. Overall, according to Jones Lang LaSalle, sovereign wealth funds boosted investment by 13% to €9bn. Norway’s giant state Pension Fund - now holding assets worth €600bn - started buying real estate in 2011, and it too is nowhere near its target of 5% of holdings in real estate. The high demand has driven down yield in all prime locations, confirms JLL.

The majority of Allianz’s commercial assets are located in Germany and France, while a first investment in Italy was made last June and another acquisition of 50% of a shopping mall in northern Italy is in final stages, said Piani - in line with the insurer’s goal of increase the share of retail in the portfolio. Some €300m is earmarked for logistics assets this year, and Allianz is also looking to make its first direct real estate investments in Asia in 2015. Piani aims to double the percentage of the insurer’s property assets outside the Eurozone, where 90% of its assets under management are allocated.

Significantly, Piani also confirmed that Allianz is also stepping on the brakes of its real estate property debt expansion plans. It now expects to reach €10bn by 2017, from €6.6bn now, a goal initially targeted to be reached by next year. Most of the current sum is allocated in the US, where the insurer has been active since the 1980s. It started lending in Europe only in 2012, and is active in retail, logistics and offices.

But he said residential loans are also of interest now. “There’s a need for financing when there are a lot of equity deals,” he said. “Because deals are picking up again, we’ll have a base big enough to grow our loan book.” Allianz’s most recent transaction was a €145m loan to Evans Randall as part of a €182.5m refinancing of the Stuttgart shopping centre Königsbau Passagen (reported on in Feb. 1st 2014 issue of REFIRE).