Allianz Real Estate poised to raise external capital for the first time – exclusive

Europe’s biggest private real estate institutional investor plans to raise third-party capital from the second half of next year for a credit-focused vehicle.

The largest European institutional investor in private real estate is to start raising capital from third-parties for the first time in its history, PDI’s sister title PERE has revealed.

According to Francois Trausch, chief executive officer of Allianz Real Estate, the property business of the world’s biggest insurance company, Allianz, a debt fund will be introduced in the second half of next year which it expects to be capitalized by institutions unrelated to the organization.

“We are trying to build a business here that will serve clients in the long run”

Francois Trausch

Should the fundraising be successful, it would represent the first capital managed by the Munich-headquartered business that has not originated from Allianz or its affiliates. According to PERE’s 2018 Global Investor 50 ranking, Allianz Real Estate currently has $48.2 billion of equity invested in private real estate, the highest amount for any European institutional investor and second highest globally to the United Arab Emirates’ Abu Dhabi Investment Authority, which has $62.1 billion of equity invested in the asset class.

To date, Allianz Real Estate has provided capital for its investments exclusively from 38 Allianz businesses.

However, through the introduction of the fund, external debt investors will now be able to back Allianz Real Estate outlays. Initial investors are expected to be from Germany but in time investors from further afield in Europe are also anticipated to participate.

Trausch: It’s time to see how far we can push this

The fund will provide capital for Allianz’s real estate debt program, for which it will make use of a platform established in Luxembourg. According to Trausch, as much as €300 million is expected to be raised in the first six months with a view to scaling the platform up. “Roland [Fuchs, Allianz Real Estate’s head of European debt] and his team are confident this will be a substantial business over time,” he told PERE last week.

“Our aim is absolutely to increase our overall scale in lending,” he said. Indeed, while Allianz’s real estate platform has grown substantially since Trausch took over from predecessor Olivier Piani at the turn of 2016, the lending component of the business has also expanded exponentially. In Europe, a business that was started in 2011 has now grown a loan book of more than $8 billion today and expanding at a rate of $2.3 billion per year.

“Originating more than €2 billion a year represents 140 percent of our original target amount,” Trausch said. “But we are trying to build a business here that will serve clients in the long run.” By Trausch’s reckoning, the introduction of a fund able to cater for outside money is a way for Allianz to capitalize on the void still left by real estate’s traditional bank lenders.

Non-bank lenders share of the European real estate lending market has steadily increased this decade. In the UK, Cass Business School data show alternative lenders accounted for 25 percent of the market in 2017, up from 9 percent in 2012.

“There is definitely a place for insurance companies and related money to be in the sector over the long-term and, cycle-wise, this is the right product, especially if you start in the senior space with a small percentage of enhanced debt. It’s time to see how far we can push this.”

Trausch added that while third-party capital would help the firm bolster its market share in real estate credit markets, there are no plans to raise a fund to supplement its bigger, equity-based strategies which have grown significantly without the need for outside money. When PERE interviewed Trausch in October 2016, the firm managed just over €45.4 billion of assets and had plans to grow this AUM to €60 billion by 2020. He told PERE last week that target has now been reached, almost 18 months ahead of forecast, thanks to an increase in commitments to both direct and indirect strategies.