The manager of Norway’s sovereign-wealth fund, the world’s largest, formed a venture with Axa Real Estate Investment Managers to provide European commercial real estate debt as borrowers rush to refinance maturing loans.
Norges Bank Investment Management and Axa Real Estate, a unit of Europe’s second-largest insurer, will supply individual senior loans as large as 600 million euros ($814 million) mainly in the U.K., France and Germany, Axa Real Estate said in a statement today.
The amount of property debt maturing in Europe through 2014 exceeds available funding by $50 billion after banks cut lending in the financial crisis, broker DTZ said in a June report. The shortage creates wider profit margins, attracting insurers, debt funds and sovereign-wealth funds.
“We have the capability to maintain attractive margins here,” Isabelle Scemama, global head of real assets finance at Axa Real Estate, said in an interview. “We will continue to be selective and try not to compete with the German banks that are more aggressive.”
Axa and Norges Bank will focus on providing new loans and will also consider buying existing loan books, Scemama said. “The new difference will come from the fact that we have new capacity to lend very big amounts on a deal by deal basis,” she said.
Insurers, pension providers and national funds are investing in real estate, seeking margins that beat 10-year government bonds. More than 50 lenders, including debt funds, started offering commercial property credit in the U.K. in the year through May, mainly for the best properties in London, according to broker Savills Plc.
Most lenders in Europe will only take on loans of more than 100 million euros as part of a syndicate, said Nigel Almond of DTZ, who researches the debt funding gap in Europe. Dealing with just one lender might be more attractive to borrowers seeking large loans, he said.
“You haven’t got conflicts between the different lenders over the terms and everything, so it does make it that much easier,” Almond said by telephone. “There’s not that many deals being done at that level at the moment, but the markets are starting to pick up and we’re seeing improved liquidity.”
Banks and other lenders cut their commercial real estate lending in Europe after the 2008 financial crisis as they repaired balance sheets damaged by losses and tried to meet new regulatory requirements.
Norway’s $780 billion sovereign-wealth fund is seeking to increase the proportion of its holdings in real estate to about 5 percent and has bought stakes in European warehouses, the Times Square Tower in New York and the Meadowhall Centre in northern England in just over a year.
“The approach to this real estate debt program is similar to the fund’s existing real estate investment strategy,” Norges Bank said in a separate statement. It will allow the fund to “invest alongside an experienced team with balance sheet capacity and long-term investment horizon.”