Norges Bank Investment Management (NBIM) and AXA Real Estate Investment Managers have entered into a European commercial real estate loan co-investment programme targeting individual large senior loans of up to €600m, marking the entry into senior debt by the world’s largest sovereign wealth fund.
While the total senior debt investment programme is not disclosed, the co-investment programme is expected to see the AXA Real Estate and NBIM write loans on a 50:50 basis secured by commercial property predominantly in the UK, France and Germany.
CoStar News understands that this is the senior debt mandate first issued as a request for proposal (RFP) by NBIM prior to MIPIM this year, which CoStar News reported during the exhibition conference.
Isabelle Scemama, global head of real assets finance at AXA Real Estate, said: “Partnering with Norges Bank Investment Management helps underline our leadership in the European commercial real estate lending market and further strengthens our relationship with this world class investor.
“This partnership consolidates our competitive advantage in that it increases the size of individual real estate loans we can underwrite to €600m. We are now looking forward to co-investing alongside them as we seek further opportunities to invest in the European CRE debt markets.”
Over the last year, AXA Real Estate has begun to lend higher up the risk curve, given the tightened margins for prime assets in the UK, France and Germany’s major cities, which could imply the same for this co-investment programme.
The investment proposition for NBIM to expand its real estate footprint into senior debt is compelling one, given its considerable and ever-increasing source of pension fund capital which needs to be liability-matched.
NBIM, which manages Norway’s 4.14trn kroner (circa £477bn, €551bn) Government Pension Fund Global, known as the Norwegian oil fund, was given a mandate three-and-a-half years ago to increase its allocation to global real estate up to 5%, which on the fund’s current value equates to around circa £23.85bn (€27.55bn).
Back in March, CoStar News reported that Norwegian sovereign wealth fund was seeking to appoint an adviser to conduct a comprehensive analysis of the historic and current real estate lending markets, with a focus on the UK, Germany, France as well as other selective European markets.
The initial RFP also comprised a requirement for a risk-focused analysis of the historic market, the size of the lending market as well as who the current active lenders are, margin spreads across differing real estate yield profiles as well as an analysis of the relative risk-returns from senior debt across the core European markets.
Furthermore, NBIM was seeking some strategic advice over how the sovereign wealth fund should enter core European senior lending, that is, through a separate account mandate – awarded to an investment bank, insurance lender or senior debt fund – or through establishing their own platform and team of originators to run an in-house programme.
NBIM, historically a semi-permanent direct real estate owner, has also asked for an analysis on whether the sovereign wealth fund should floating rate or fixed rated debt should be offered.
In the three-and-a-half years since NBIM has undertaken a considerable global direct real estate spending spree, including a 50% stake in the Meadowhall shopping centre in Sheffield for £750m including liability for the securitised debt, a 50% stake in a pan-European 195-strong logistics portfolio for €1.2bn and a 49.9% stake in five US offices, together worth $1.2bn.
AXA Real Estate’s CRE debt team is already the largest pan-European investment manager in the real estate lending space, with a real estate loan book of €7.5bn.
In 2013 AXA Real Estate has continued to demonstrate its capacity to deploy significant capital in CRE loans, having invested €1.8bn to date, out of the €2.5bn target for the year, 45% of which relates to assets in the UK.