AXA Investment Managers – Real Assets has made a significant push into the US market through the acquisition of a dedicated investment team and a $9.4 billion portfolio of US commercial mortgage loans from Quadrant Real Estate Advisors.
As part of the deal, which is pending regulatory approval, the €77 billion asset manager will take over one of Quadrant’s US business lines focused on commercial property mortgage loan mandates. Additionally, 24 members of Quadrant, including five of the founding partners, will join the real estate investment management arm of French insurance firm AXA.
AXA IM – Real Assets said the transaction forms part of its strategy to expand internationally, and particularly in the US. The firm has been investing in the country’s debt market since 2014 and last year allocated up to 25 percent to the US through its €1.5 billion CRE Senior 10 real estate debt vehicle.
Through the Quadrant deal, the firm aims to expand deployment options in terms of investment strategy, to optimise the use of capital from an investor base that increasingly demands a global strategy, Timothé Rauly, head of funds group at AXA IM – Real Assets, told PDI sister publication Real Estate Capital.
“The US market is the largest in the world. As part of our long-term strategy to expand globally, we will benefit from a US experienced team which will give us exposure to debt instruments benefiting from a stable income,” Rauly said.
“Thanks to the acquisition, we will have access to more opportunities and, therefore, we can be even more selective when sourcing deals. We expect to increase performance by 20 basis points to 30bps by focusing on the right assets at the right moment for our risk profile,” he added.
AXA IM – Real Assets’ CRE Senior 10 debt vehicle is currently achieving a return of around 200bps over three-month Euribor, with loan-to-values typically between 40 percent and 60 percent.
The fund’s strategy has seen AXA IM – Real Assets lend against both “stabilised” core assets and value-add and transitional assets, which offer the opportunity to capture higher margins.
In the US, the asset manager is looking at loans priced above 200bps over three-month Libor in the US, which, after hedging costs, breaks back to more than 170bps, often for a lower risk, lower leverage and shorter maturity than comparable deals in Europe.
Through the team joining from Quadrant, AXA IM – Real Assets also aims to have exposure to the senior fixed-rate, long-term US debt market, with loan sizes that could range from €30 million to more than €200 million and a typical maturity from seven to nine years. “Historically, these types of loans in the US have had a spread of 200bps, but today, due to competition, spreads are closer to 170bps,” Rauly noted.
Although the Quadrant team joining AXA IM – Real Assets in the US has been providing debt liquidity to segments such as development, mezzanine and the CMBS markets, the firm’s main focus is within fixed-rate, long-term loans.
“We want to source these specific deals in the US which will bring us expertise to long-term, fixed-rate debt into the European market,” Rauly said.
The access to the debt market in the US could motivate AXA IM – Real Assets to launch new US-focused vehicles for commercial real estate, Rauly said, although this would depend on market conditions.
“If we see a pocket of opportunity, we will launch a dedicated strategy in the US, but we have a very prudent approach right now. We are doing well, and have no pressure to launch a strategy immediately,” Rauly said.
AXA IM – Real Assets is aiming to maintain, rather than grow, its real estate debt portfolio; likely to be a defining factor when it targets a fresh fundraising.
While it raised €1.5 billion for its 10th debt fund, the firm had previously raised €2.9 billion for its predecessor vehicle in 2015. In line with its aim to maintain its book, the firm’s deployment has reduced year-on-year; in 2015, it invested €4.5 billion in real estate debt, down to €3 billion in 2016, and to around €2.2 billion in 2017.