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Allianz starts commercial property lending as banks retreat


MUNICH (Bloomberg)—Allianz S.E., Europe's biggest insurer, will start to offer direct commercial real-estate loans in Germany this year and may expand into mortgage lending across the euro region.

Allianz Real Estate will grant senior loans to German property buyers or borrowers refinancing existing debt, said Olivier Piani, chief executive officer of the property unit. Senior loans rank first for repayment in the event of a default.

“Hopefully, it can create enough volume to be a sizeable business,” Mr. Piani, 57, said in an interview last week. “Then we will ask if we should do deals in other markets, like going to France and Italy. Then, we would look at the euro zone.”

Allianz and other insurers are attracted by the higher interest income generated by commercial property loans compared with government bonds, Mr. Piani said. Banks, which dominate property lending in Europe, are pulling back after incurring losses in the financial crisis. That has forced real-estate borrowers to look elsewhere for refinancing and new funds.

Until now, Munich-based Allianz's European commercial real-estate lending has involved buying property-backed covered bonds known as pfandbriefe that are sold by German banks. New rules on capital by the Basel Committee on Banking Supervision, known as Basel III, may limit the number of pfandbriefe they can sell.

Alternatives to bonds

Allianz owns about €350 billion ($486.61 billion) worth of bonds, equal to 80% of its investments, some of which are managed by its Pacific Investment Management Co. L.L.C. unit, Mr. Piani said. Prospects of slower pfandbriefe sales have made it consider other ways to generate secure investment returns from property, Mr. Piani said at the Mipim real-estate trade fair in Cannes, southern France.

“For Allianz and other lenders to that market, the question is what to do with our money,” Mr. Piani said. “So why not lend directly to real estate?”

More than €500 billion ($695.15 billion) of commercial real-estate loans will mature in Europe during the next three years and most will require refinancing, according to real-estate adviser CB Richard Ellis Group Inc. Financial institutions in Europe racked up losses of €494 billion ($686.81 billion) since the third quarter of 2007 in the financial crisis and the ensuing real-estate slump, according to Bloomberg calculations.

Nonbank lenders lifted their share of European commercial real-estate lending to about 24% in 2010 from 13% in 1997, London-based property adviser DTZ Holdings P.L.C. estimates. Prudential P.L.C., AXA S.A., Aviva P.L.C., Canada Life Group and Metropolitan Life Insurance Co. are all stepping up their property lending.

Risk appetite

Insurers are also making riskier property loans, mainly through funds that specialize in junior or mezzanine debt, which rank after senior loans for repayment in a default.

Duet Group, a manager of private equity and hedge funds, raised £75 million ($121 million) this month for its European Real Estate Debt Fund from institutional investors and the sale of shares in a publicly traded company.

Allianz Real Estate’s Mr. Piani wouldn’t say how much Allianz plans to lend for commercial property.

“The issue isn’t the overall volume limit, it’s about the deals,” he said.

Allianz already does real-estate lending in the U.S., where sources of financing are more diverse, through an investment unit partly absorbed by Allianz Real Estate earlier this year. The unit made 220 loans totaling $5 billion during the past five years. In Germany, Allianz also has a residential mortgage-lending business based in Stuttgart.

Mr. Piani also plans to double Allianz’s investment in commercial buildings to €30 billion ($41.71 billion) by 2014 as the insurer lifts real estate-related investments to 6% of the total from 4% previously. He has about €2 billion ($2.78 billion) to spend this year and earlier this month he agreed to invest an initial €400 million ($556.1 million) in a venture with AMB Property Corp. to buy logistics centers and warehouses in the euro region.

“We are working on a number of other deals, principally in Germany and France,” Mr. Piani said.

Copyright 2011 Bloomberg