Increasingly fierce competition is dawning for investors and asset managers in Asia Pacific’s commercial real estate markets. And while new pan-regional funds are launched regularly and transactions set a new record last year, a new powerhouse might be ready to enter the ring.
On March 10, Allianz-owned asset manager Pimco said it would assume oversight of Allianz Real Estate, the property investment business of Germany's Allianz Group. The shares of Allianz Real Estate will be transferred to Pimco.
Allianz Real Estate is the only one of the two active in Asia Pacific commercial real estate. But the market is gearing up for bigger efforts in the region as Pimco takes over the reins, sources told AsianInvestor.
“If you combine the scale of Pimco’s organisation with Allianz Real Estate’s recent heavy expansion of its Asia-Pacific acquisitions and its [regional] team, it is likely that they will expand further into the region,” said one Hong Kong-based real estate adviser.
Allianz Real Estate's Asia Pacific assets under management had nearly doubled to €5.5 billion ($6.14 billion) as of end-2019 from €3 billion the year before. Its headcount has also grown to 25 staff in the region as of late last year, up from just two in 2016, as its aims to increase the regional allocation to as much as 10% of its current €73.6 billion in the long term, Rushabh Desai, Asia Pacific chief executive of Allianz Real Estate, told AsianInvestor in October.
Yet so far Allianz Real Estate has only made Asia Pacific investments on behalf of Allianz Group companies, not involving third-party capital. That approach might change with Pimco at the wheel.
“Allianz Real Estate could use Pimco’s distribution to co-manage a fund – and I think that having Pimco’s name attached to a fund gives investors the impression that it’s not an insurer managing the money; it’s an asset manager that’s been managing distressed and commercial real estate portfolios for 12 years or more,” said one executive familiar with Pimco.
An Allianz Real Estate spokesman told AsianInvestor that the company was not ready to go into details on any regional impact “as the finer points are still being worked out as a part of the transfer process”.
By aligning itself to Pimco, however, Allianz Real Estate will be able to tap into its new parent company’s distribution expertise, diversify its client base and grow its assets under management (AUM) considerably, he said.
“The combination of Allianz Real Estate and Pimco real estate AUM will move the business into one of the largest investment managers in real estate which in turn will open doors to acquiring and originating and managing even more high profile assets and loans,” the spokesman added.
This will enable Allianz Real Estate to invest beyond the portfolio constraints of its captive client base. The limits placed on strategies, be that investment vehicle, country, asset class or risk profile, will be reconsidered in the light of broader client appetite.
GROWING THE PIE
The move will more than double Pimco’s alternatives portfolio, which has so far made up a relatively small share of AUM, since the investment firm began to manage alternatives in 2004 as an extension of the firm’s core business in fixed income.
At the end of last year, Pimco had a total AUM of $1.91 trillion with 3%, or $57.3 billion, in alternatives. Pimco’s real estate platform has focused on opportunistic investments and credit in the US and Europe.
At the time of going to press Pimco did not respond to inquiries about the AUM of its current real estate investments but, according to the merger announcement, the combined portfolio will exceed €100 billion in core, value-add and opportunistic real estate across Europe, the US and the Asia Pacific region.
With a primary focus on core to value-add opportunities, Allianz Real Estate’s assets under management stood at €73.6 billion by end-2019, including debt and financing, and the Asia Pacific allocation stood at 7.5% at end-2019.
Neither Allianz Real Estate nor Pimco commented directly on what the merger would mean in terms of staff changes.
Pimco built its real estate capability in the aftermath of the global financial crisis in 2008. After the crash, it started to offer distressed assets to private funds throughout the US and Europe. And most of those, an Asia-based executive familiar with the firm said, were in real estate.
“Pimco initially bought securitised loans in areas like commercial property for strategies like its Bravo funds. But as they built the team, that developed into buying and managing physical properties. They built a very large and capable real estate group, hiring guys from property companies,” said the executive on condition of anonymity.
Any Asia Pacific expansion plans from Pimco and Allianz Real Estate will happen in an increasingly crowded market.
On March 9, for example, CBRE Global Investors announced the closure of its fifth value-add fund in its pan-Asia series at a hard cap of $900 million in equity commitments from institutional investors. Moreover, PGIM first-closed a core Asia property fund in September 2019 with $447 million, and Nuveen launched an Asia Pacific real estate strategy in 2018.
Last year delivered a regional transaction volume record of $169 billion, marking a 6% year-on-year growth, according to data from global real estate broker JLL. The record came even as the record-breaking streak ended in the fourth quarter when investment flows moderated 4% relative to the same period in 2018.
“The fundamentals of Asia Pacific’s commercial real estate market will again serve as a major draw for investors in 2020. Despite macroeconomic challenges and the highly unpredictable nature of the Covid-19 outbreak, longer-term investor sentiment remains extremely positive,” said Stuart Crow, chief executive of capital markets for Asia Pacific at JLL, in a statement on February 19.
“We foresee investor strategies becoming more selective and further diversification into the logistics, living and data centre sectors. The continued low interest rate environment and supportive central bank policy will also offset some of the macro headwinds and provide further confidence to investors’ cross-border strategies,” he added.