Bloomberg News

Allianz Sees ‘Bubble Pricing’ for Some Prime Commercial Property

October 06, 2011

Oct. 6 (Bloomberg) -- Allianz SE, Europe’s largest insurer, is finding it tougher to meet its target for spending on prime commercial real estate after competition drove up prices in German, French and British hotspots.

“We want to buy more assets for our balance sheet, but we need to be very selective,” Olivier Piani, Allianz Real Estate’s chief executive officer, said at the Expo Real trade fair in Munich today. “Some assets are too expensive.”

Real-estate investors are focusing on properties that generate long-term rental income as economic growth slows and the euro region debt crisis makes financing more difficult, said Peter Damesick, CBRE Group Inc.’s chief European economist. The bulk of investment targeted offices in the major western European cities and dominant shopping centers, he said.

The weight of money seeking the best assets has driven down capitalization rates, an industry gauge for investment that measures rental income as a proportion of property value.

RREEF Real Estate, the property asset management arm of Deutsche Bank AG plans to sell its stake in Perlacher Eukaufsparadies mall east of Munich, known as PEP, for around 400 million euros ($530 million). Annual rental income generated by the center may represent 4.5 percent of the asking price.

“The PEP auction will be very expensive,” Stefan Brendgen, Allianz Real Estate’s head of Germany said at the trade fair. “We are seeing bubble pricing in certain assets.”

With more than 5 billion pounds ($7.7 billion) of central London properties for sale, some buildings are being offered at prices that are “detached from the economic reality,” said Chief Investment Officer Charles Pridgeon.

‘No Room for Growth’

In France, capitalization rates for prime offices in Paris have fallen to 4.5 percent, leaving “no room for growth in capital values,” said Olivier Wigniolle, Allianz’s head of France and Benelux.

Allianz is in talks to acquire as much as 500 million euros of real estate in those countries, he said, adding “I’m not sure we are going to push the limit to make these acquisitions.”

Allianz has made about 1.5 billion euros of real estate investments or development commitments this year. Deals include the 360 million-euro purchase last month of an 80 percent stake in Frankfurt’s Skyline Plaza mall and a 310 million-euro loan made to DWS Investment GmbH to buy Deutsche Bank headquarters in Frankfurt.

The spending is “less than we would have wished,” CEO Piani said. In March, he said he had about 2 billion euros to spend as he aims to double Allianz’s investment in commercial buildings to 30 billion euros by 2014.

--Editors: Ross Larsen, Jeff St.Onge

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net

To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net


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