Axa Sees ECB Stress Tests Producing Real Estate Investment Deals

European Central Bank stress tests of lenders will create real estate investment opportunities this year as the region’s banks shore up their balance sheets, according to the head of Axa SA’s property unit.

“Some of the assets which could have been secure or very safe six or seven years ago, now they may be riskier,” Pierre Vaquier, chief executive officer of Axa Real Estate Investment Managers, said in an interview. “They may have shorter leases. They might have need for asset management. This is where we feel you will get interesting opportunities.”

The tests, examining a bank’s ability to withstand financial setbacks, will be done on a sample of 128 lenders and include an asset-quality review, the ECB said March 11. More than 40 billion euros ($55 billion) of commercial property loans and real estate owned properties will be sold this year, 32 percent more than last year, broker Cushman & Wakefield Inc. said in February.

The tests aren’t necessarily going to generate a lot of transactions at big discounts, Vaquier said. “Banks have learned from the 1990s that if you have the balance sheet and a bit of support naturally, it’s better to take your time to deleverage and restructure your assets.”

Axa Real Estate, based in Paris, is seeking properties in need of refurbishment or that aren’t fully leased as the best quality assets in Europe are “a bit pricey,” Vaquier said.

“Over the last 18 months we’ve done nearly 1.5 billion euros of value-add,” he said. “It has been where we have seen the most attractive situations.”

Price-Drop Vulnerability

Poor-quality commercial properties in regional locations in France are vulnerable to price drops, Vaquier said. “The economy is not doing well, we are in the middle of the pack more or less,” he said. “I think on secondary stuff we will see an adjustment.”

Office buildings in London are the best part of the European property market as the U.K.’s economy rebounds, Vaquier said. A building near St. Pancras rail station bought by Axa before its completion, and without tenants in about 40 percent of the space, will be fully leased at rents above expectations when it opens, Vaquier said at the MIPIM real estate conference in Cannes, France.

The office property was bought for about 300 million pounds ($495 million) and is due for completion next year, according to a September 2012 statement by the asset manager.

The strength of sterling and the euro may cause demand for European real estate by Asian investors to fall, he said. The pound has gained about 19 percent against the Malaysian ringgit and about 11 percent against the Singapore dollar since May.

“For insurance companies, it’s going to be a problem and some of them I’m not sure have always hedged their currency,” he said. “For the ones who have not, it might be an issue.”

To contact the reporter on this story: Neil Callanan in London at ncallanan@bloomberg.net

To contact the editors responsible for this story: Andrew Blackman at ablackman@bloomberg.net Jeffrey St.Onge

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