Allianz Real Estate, the captive investment and asset manager for Allianz Group, is increasing its allocations to Asia’s residential property sector, expanding in Japan and exploring markets like Australia and China.
“We saw resilience in the Japanese multi-family sector through the pandemic and wanted to double down on it,” Rushabh Desai, CEO of Allianz Real Estate’s Asia Pacific (Apac) business, told AsianInvestor.
Desai pointed to the higher spread between residential assets and the cost of finance, as well as superior cash returns compared with traditional sectors such as offices. “In Tokyo, prime residential offers between 3.3% and 3.5% yield, while you can still borrow for such quality assets at between 0.75% and 1%,” he said.
Japan is currently the only country with a fully institutionalised residential property sector in Apac, and the third largest country globally, he said. “It has deep capital, offering strong liquidity and well established regulations.”
In December, Allianz Real Estate announced it had launched an investment platform targeting $2 billion in gross asset value, to build a diversified portfolio of multi-family residential assets across Japan’s four major cities of Tokyo, Osaka, Nagoya, and Fukuoka. The platform will invest alongside Canadian pension manager Ivanhoé Cambridge and other unnamed investors. Current equity commitments total $750 million — including $250 million from Allianz — and may increase to $1 billion, depending on the pace of capital deployment.
Desai said that Allianz Real Estate has built a six-strong team in Tokyo, and will look to further expand the team as the portfolio grows, potentially increasing the on-the-ground resources to as many as 10, in the next 12 months.
Prior to December, Allianz Real Estate already owned 130 multi-family assets in Japan, including a $1.1 billion portfolio bought in 2019. Today, it manages a Japan residential portfolio of $1.6 billion.
Allianz Real Estate, as investment manager and General Partner (GP), in 2020 launched its Apac “Invest alongside Allianz” strategy in a 50-50 venture with the National Pension Service of Korea via a closed-end, Singapore-domiciled $4.6-billion investment platform that included $2.3 billion in equity. Desai said the Japan platform signalled the company’s continuation of this strategy with like-minded investors, the company’s favoured approach in the region.
“While we are open to partnering with a variety of institutional investors, they must be like-minded in terms of long-term investment perspective and their expectations about asset quality and sustainability,” he said, adding that in practice, the partners were typically sovereign institutions, insurance companies, and pension funds.
“For us, [this approach] offers scale, which in turn provides prioritised access to opportunities and diversification. Rather than owning five buildings fully, for example, it means owning a one-third share of 15 buildings,” he said.
Desai also signalled the company’s intention to expand its residential allocation in Australia, where he was hoping to travel in the coming weeks, once it had found a suitable operating partner.
“There are not many operators with a big realised track record. This year, we would like to find an operator that meets our standards. Overall, real estate yields have compressed more in Australia than in other markets, but interest rates have gone down, so [investment] makes sense. As the borders open again, we continue to evaluate.”
Desai said that he now considers residential a core property sector — a status that many investors reserve for commercial sectors such as offices and logistics. Within the living sector in Asia-Pacific, Allianz Real Estate focuses on multi-family and student accommodation in major cities. It is one of the company’s four Asian investment themes, alongside logistics, data centres, and Office 2.0.
Office 2.0 refers to the part of the sector that is particularly well positioned in the wake of the pandemic, such as prime CBD offices, IT parks, business parks, and life science parks. Allianz Real Estate’s logistics investments in Asia are focused on B2C facilities, in particular distribution facilities, cold storage, and anything serving healthcare.
Desai said the company was committed to expanding the concentration of green leases in its Apac portfolio. Green leases contain specific KPIs agreed between tenant and landlord, relating to the ESG impact of operating buildings. “It starts with [sharing data], and tenants working with [us] to reduce energy consumption,” he said. Tenants might share information on energy consumption and should be open to using renewable energy sources, he added.
The new Japan multi-family venture targets primarily newly completed buildings. Desai noted that the company has made considerable progress in finding buildings with low emissions footprints and sustainable operations, supporting Allianz Real Estate’s ESG objectives. “In our existing Japanese multi-family portfolio, in the last nine months we have already signed 825 green leases [or 15% of all leases] and will seek to carry the momentum in 2022,” he said.
Desai also pointed to progress the company was making in China in improving the ESG performance of its buildings, supported by specialist service providers, including one the company retained to do full energy audits of all its assets. “In general, we are educating our tenants about what we mean about sustainability and what the benefits are,” he said.