AXA IM seeking to raise AUM for 'alternative real estate'

Singapore

AXA Investment Managers (AXA IM), the fund house of French insurer AXA, is looking to raise its assets under management (AUM) for "alternative real estate" from the current US$3.5 billion to about US$5-6 billion globally over the next two years.

Alternative real estate is used to describe what is less commonly seen as investible real estate such as student housing, healthcare assets, hospitality and data centres. But these alternative real estate is becoming mainstream as investors increasingly embrace them for their higher yields.

But they still currently account for less than 5 per cent of AXA IM's global real estate portfolio of about 70 billion euros (S$108.9 billion) globally as at end-2016, said Laurent Jacquemin, European head of transactions for real assets at AXA IM.

"Definitely, we see more sovereign wealth funds like GIC really investing a lot in alternative real estate. But we look at opportunities where we can partner with them instead of competing," he said.

Mr Jacquemin revealed that AXA IM is in talks with such investors to acquire large portfolios of student housing and hotels in Spain, the Netherlands and the UK.

Speaking to BT at the sidelines of the Urban Land Institute (ULI) Asia Pacific Summit, Mr Jacquemin said AXA IM is keen on alternative real estate that cuts across hospitality, healthcare, student housing and data centres.

For student housing assets, he is looking at cities that are popular with international students such as Barcelona and Madrid in Spain and London, Oxford and Cambridge in the UK.

AXA IM-Real Assets has 15 offices worldwide and operates in 24 countries, according to its website. As at March 31, the AUM of AXA IM across all asset classes in 60 countries stood at 747 billion euros.

While mainstream real estate such as offices offer higher short-term capital appreciation, alternative real estate typically generate yields of 150-200 basis points higher than mainstream real estate. They are also relatively stable and offer good diversification due to their long-term leases.

A prime student housing portfolio in London can offer a higher annual yield of 4.5-5 per cent with a long lease, for instance, compared with prime office asset's 3-3.5 per cent in London, Mr Jacquemin projected.

Also speaking at the same panel at ULI Asia Pacific Summit was Robert Naso, managing director and founder of Clear Bridge Asia Capital, who pointed out that other forms of alternative real estate have also taken off, including self-storage in the US, student housing in Australia and retirement or healthcare living in Australia.

But some assets such as self-storage and childcare real estate are fragmented in terms of ownership and their smaller ticket size makes it harder for investors to scale up such asset portfolios, he said.

Panelists also highlighted risks associated with buying alternative real estate that stem from the exposure to operational risks of running the related businesses.

Mr Jacquemin said there is a need to understand the underlying business and the operator, making sure there are ways to replace the operator or convert the property to other uses in the worst-case scenario.