Allianz kicks off era of alternative real estate financing with DWS loan

Uncertainty surrounding the actual date of introduction of the Solvency II rules will further cloud the issue for many potential lenders, while the mountainous burden of the banks’ own legacy loans will act as a severe damper to any new lending to the real estate sector, delegates were told.

Speaking at the conference, John Forbes, real estate funds partner at PriceWaterhouseCoopers, pointed to the new role that sovereign wealth funds from particularly the Middle East and Asia are likely to play over the coming years as providers of fresh capital to real estate, and said the side-effect of this would be a new challenge for the real estate industry to create more core real estate assets.

This was because, as a result of the sovereign funds’ increased activity in Europe, the already short supply of what constitutes ‘core’ real estate assets is likely to shrink even further, he said. “Sovereign players such as the National Pension Service of Korea take core as- sets out of the market to hold as long- term investments, not to trade,” Forbes said. This will lead to investment capital “drifting into other things”, he cautioned.

While obviously not a sovereign wealth fund, the insurance group Allianz provides a good example of how new funding sources could look like, with the thinking similar to that of the sovereign funds. Earlier this year Allianz unveiled a plan to provide up to 1bn funding to the real estate industry by the end of this year, focusing initially on its home market of Germany. The move comes in response to the need to supplement the Pfandbrief covered-bond property financing mechanism in addition to other fixed income investments such as corporate and government bonds.

Allianz said it would be looking to grant fixed rate senior loans for around 60% of the value of the underlying asset (similar to the Pfandbrief), and with a term of 7-10 years or even longer. Assets to be financed would be ‘core’ office, retail and logistics properties with the unit deal size ranging between €50m and €200m. Depending on its roll-out in Germany, according to Allianz Real Estate’s head of Germany Stefan Brendgen earlier this year, it would look to expand its debtorigination business into probably Italy and France as a next step, although this could be some time away.

Earlier this month Allianz made its first deal in the market by lending about €310m to the DWS fund for the €600m acquisition of the iconic Deutsche Bank headquarters in Frankfurt – the twin glass towers known affectionately as ‘Debit’ and ‘Credit’ in the banking district that have just re-opened in February after a massive three-year refurbishment programme to provide state-of-the-art housing for the bank’s 2,800 employees.

DWS is itself a fund subsidiary of Deutsche Bank, and started marketing the closedend fund earlier this month to retail investors to raise equity of €350m. Deutsche Bank has leased the buildings from DWS for 15 years and has an option to extend the lease by a further five years. The buildings have been the bank’s headquarters for the last nearly 30 years.

Helmut Mühlhofer, the head of debt and capital markets at Allianz Real Estate, explained that the deal is part of the company’s strategy to diversify its fixed- income portfolio. “The deal is perfect for what we were looking for, it‘s conservatively structured in terms of the loan-to- value ratio, and it‘s a fully refurbished building with top-rated tenants.” Allianz would differ from existing lenders by offering loans of 7-10 years or longer, he said. “The market could be opening – but it‘s still too early to tell… Financing for this kind of deal is still competitive. We‘re not trying to be the cheapest kid on the block.”


(courtesy of REFIRE: www.refire-online.com)