Towards the back end of last year it was identified that one of the biggest problems faced by European real estate (along with that in much the rest of the world) was the lack of financing available from banks, especially senior lending. Many questioned whether or not large institutional investors, such as insurance companies could step in to fill the void, but at the time there were doubts as to whether or not they would, or even could provide enough funding to make a dent.
This year though we are seeing insurance companies stepping up and taking a much larger role in real estate, both in financing and investment. Axa, one firm that did become a lender last year to the tune of 1.5 billion last year, has just announced that it is preparing to lend a further 2 billion Euros to the property industry in Europe this year.
The funds are to be focussed on Germany and France according to Isabelle Scemama, head of commercial real estate with the firm. This is because both German and French banks "follow their UK peers in adjusting down their lending strategies".
The 2 billion will be concentrated on providing new senior debt according to Scemama. She said the shortage of supply in new lending to the sector meant senior loans “currently offer by far the most attractive risk-adjusted returns”.
The announcement comes just after an announcement last month, that Axa had raised 2.5 billion Euros for a new property investment fund, to target development of new shopping centres and offices. On top of that Legal and General have also recently made a foray into real estate lending, hoping to take up some of the slack.
Insurance companies are some of the biggest investors in the world. Right now the stock market just isn't delivering for them, it is far too volatile. Meanwhile property is much more stable, and also has the potential for strong returns in the current climate. Thus, insurance companies lending on real estate is not a selfless act; they will make money on the loan repayments and at the same time the increased liquidity will increase confidence and the profitability of their investments as well.
- Monday 27 February 2012