Munich: Allianz, Europe’s largest insurer, is taking advantage of banks’ diminished appetite for lending against real estate by offering loans to boost its investment in property.
The loans offer a similar return to the rental yields on acquired buildings and help Allianz to overcome a scarcity of prime real estate investment opportunities, Olivier Piani, chief executive officer of Allianz Real Estate, said.
Declining margins on assets traditionally considered safe, such as German or US government bonds, have sent investors, including Allianz, rushing to put their money into property.
“Margins [on loans] were traditionally too low, but they have caught up so that lending against real estate is similar to buying real estate,” Piani told Reuters.
Property in the most valuable locations — high-quality city centre buildings fully occupied by solvent tenants — offers margins of more than 5 per cent, the Allianz manager said. This comfortably beats margins of about 1.5 per cent on 10-year German government bonds.
EU regulation
Allianz’s strategy is helped further by new European Union regulations that require banks to hold more equity in relation to their loan books to make them more stable in financial crises, leading them to lend less money.
“There is a natural gap,” Piani said, “...as most banks have chosen to get rid of real estate lending.”
By helping to fill that gap, Allianz intends to increase the group’s exposure to real estate to 6 per cent, from 4 per cent, of its overall invested capital of €480 billion (Dh2.28 trillion), Piani said.
Allianz will invest as much in loans as in property in the next five years, doubling its loan book to €11 billion and increasing its property portfolio to €25 billion, he said.
“The lending site is gearing up from a situation in the past where we invested more directly in real estate,” he said.
Meeting obligations
Loans with a maturity of 10 years enable Allianz to match its long-term obligations to insurance policyholders and benefit from assets owned by its peers, thereby broadening the insurer’s market.
Real estate companies, meanwhile, are happy to take up the new offerings from insurers, Arwed Fischer, chief financial officer of Patrizia Immobilien, told Reuters, adding that it can be easier dealing with insurers than with banks.
Fischer predicted that the sale of residential real estate would decline next year from between €10 billion and €11 billion in 2012, demonstrating the scarcity of real estate assets.
