Axa sees ECB stress tests creating real estate investment chances

European Central Bank stress tests of lenders will create real estate investment opportunities this year as the region’s banks shore up their balance sheets, according to the head of Axa SA’s property unit.

“Some of the assets which could have been secure or very safe six or seven years ago, now they may be riskier,” Pierre Vaquier, CEP of Axa Real Estate Investment Managers, said.

“They may have shorter leases. They might have need for asset management. This is where we feel you will get interesting opportunities.”

The tests will be done on a sample of 128 lenders and include an asset-quality review, the ECB said on March 11. Over €40bn of commercial property loans and real estate owned properties will be sold this year, 32% more than last year, broker Cushman & Wakefield said in February.

The tests aren’t necessarily going to generate a lot of transactions at big discounts, Vaquier said.

“Banks have learned from the 1990s that if you have the balance sheet and a bit of support naturally, it’s better to take your time to deleverage and restructure your assets.”

Axa Real Estate, based in Paris, is seeking properties in need of refurbishment or that aren’t fully leased as the best quality assets in Europe are “a bit pricey,” Vaquier said. “Over the last 18 months we’ve done nearly €1.5bn of value-add,” he said. “It has been where we have seen the most attractive situations.”

Poor-quality commercial properties in regional areas of France are vulnerable to price drops, Vaquier said. “The economy is not doing well, we are in the middle of the pack more or less. I think on secondary stuff we will see an adjustment.”

Office buildings in London are the best part of the European property market as the UK’s economy rebounds, Vaquier said.

A building near St Pancras rail station bought by Axa before its completion, and without tenants in about 40% of the space, will be fully leased at rents above expectations when it opens, Vaquier said at the MIPIM real estate conference in Cannes, France.

The office property was bought for about £300m (€358m) and is due for completion next year, according to a September 2012 statement by the asset manager.

The strength of sterling and the euro may cause demand for European real estate by Asian investors to fall, he said. The pound has gained about 19% against the Malaysian ringgit and about 11% against the Singapore dollar since May.

“For insurance companies, it’s going to be a problem and some of them I’m not sure have always hedged their currency,” he said. “For the ones who have not, it might be an issue.”