Allianz Starts $3.3 Billion Asia Property Push With Fund Dealby and
Insurer’s property unit to seek assets in Shanghai, Beijing
Global property lending to grow faster than direct investments
Allianz Real Estate is set to make its biggest Asian investment to date, in a first step toward adding as much 3 billion euros ($3.3 billion) of real estate in the region within three years.
The $150 million pan-Asian fund investment will allow Allianz SE’s property unit to test the water before buying buildings directly, Francois Trausch, chief executive officer of Allianz Real Estate, said in an interview at the company’s headquarters in Munich last week. The fund owns Chinese and Japanese assets.
"There will be volatility, but we believe in the long-term trends in Asia," said Trausch, 51. "China and India would be the two countries to anchor our Asia strategy."
Property investors, including sovereign wealth funds, insurers and private-equity firms, poured a record 179 billion renminbi ($27 billion) into Chinese commercial properties in 2015, about 51 percent more than a year earlier, according to data compiled by Jones Lang LaSalle Inc. Shanghai was China’s most active market, JLL said.
Asian cities may attract even more capital in the wake of the U.K.’s decision to leave the European Union, according to CBRE Group Inc.
Allianz plans to make direct acquisitions within a few years. The firm manages about 100 million euros of properties in Asia, compared with more than 40 billion euros of real estate equity and debt in Europe and North America.
Allianz will invest as much as 6 billion euros in real estate this year in an effort to grow its portfolio to 60 billion euros by 2019, Trausch said. By then, Allianz expects to have about 5 percent of its assets in Asia. While that target also covers Australia -- where Allianz has about 230 million euros of property -- most of the purchases will occur in China.
"In China, we like offices and logistics in the key cities, because that’s where you see the change from a manufacturing economy to a service economy," said Trausch, who spent six years as Asia-Pacific CEO for GE Capital Real Estate before joining Allianz in January. Allianz will look for investment opportunities in Shanghai and Beijing, he said.
Allianz will increasingly invest in large "gateway" cities around the world, to take advantage of economic growth there. That includes New York, where the firm this year bought a stake in the One Battery Park Plaza office tower for an undisclosed amount. Allianz may also make an acquisition in Los Angeles, Trausch said.
"We don’t have that much exposure to the global 24/7 cities. We know that’s where the demand is," he said, referring to increased appetite for space from people who want to work and live there.
Allianz has a positive outlook on the U.S., despite indications that office markets in some cities may be peaking. Allianz expects to invest 3 billion euros there in the coming years, raising its exposure to about 15 percent from 10 percent now.
"It’s an economy that has shown its capacity to be resilient," Trausch said.
Allianz doesn’t own any buildings in London because it has long considered the prices to be too high.
“Depending on your perspective, we were either too late or too early on London," he said. “We’ll have to wait. It’s definitely a city we’d like to go into." Trausch declined to comment on the U.K.’s decision to leave the European Union.
Allianz would also like to buy more in Berlin, where the company owns several commercial properties, including an office building overlooking the Brandenburg Gate and luxury-shopping complex that’s leased to Galeries Lafayette.
About half the portfolio’s growth will come from lending, as opposed to direct acquisitions of buildings, he said, which means the company may underwrite more than 3 billion euros of loans this year. Less than a third of the portfolio is in debt now.
“I’m pushing the teams very hard to expand our lending business,” he said. “The more we can do the better, both in Europe and the U.S."
Lending is attractive because it gives Allianz a way to escape the intense competition among buyers seeking to buy buildings directly, while taking advantage of banks’ growing reluctance to extend riskier and larger loans as regulation makes that type of debt more expensive.
"We can cue a ticket of 300 million euros, which banks these days are more reluctant to to do," he said.