Allianz, Ivanhoe Cambridge Team Up for $2B Japan Multi-Family Strategy

Following through on an initiative first revealed on MTD TV in May of this year, Allianz Real Estate today announced a $2 billion strategy for investing in Japanese rental apartments, together with Canadian pension fund manager Ivanhoe Cambridge.

The European insurer and the Quebec-based real estate investor are each committing $250 million in equity to Allianz Real Estate Asia-Pacific Japan Multi-Family Fund I (AREAP JMF I), which seeks to acquire newly completed multi-family residential assets in the Japanese cities of Tokyo, Osaka, Nagoya and Fukuoka, according to a statement today.

The partners expect total equity commitments to the fund will total $750 million within the next few weeks, with the potential to reach $1 billion.

“The Japan multi-family residential sector has displayed resilience throughout the COVID-19 pandemic and continues to be a high-conviction asset class, offering stable cash flows and attractive stabilized yield spreads to investors,” said Rushabh Desai, Asia Pacific CEO of Allianz Real Estate.

The closed-ended multi-family strategy, which comes after Allianz had already established a $1.7 billion portfolio of Japanese multi-family assets through earlier investments, will be managed by the insurer and is the second co-investment vehicle set up by the company in the region, with the partners expecting the vehicle will reach an investment capacity of $2 billion.

Urbanisation and Limited Supply

Ivanhoe Cambridge, which is using the strategy to invest in Asian multi-family for the first time, sees the fund as an opportunity both to benefit from the stable returns available from Japanese rental housing assets, and to venture into an asset class which is playing an increasingly important role in property investment strategies in the region.

“This Venture is an excellent opportunity for us to launch our new investment strategy of Japan multi-family, an attractive sector underscored by robust urbanization trends and limited net supply”, said George Agethen, senior vice president at Ivanhoé Cambridge. “This investment will serve to further grow and diversify our portfolio in Japan and Asia-Pacific”.

Out of Allianz Real Estate’s $8.8 billion in assets under management in Asia Pacific, nearly one fifth is invested in Japan’s multi-family sector, which the company first entered with the $1.2 billion purchase of a portfolio of 82 rental apartment properties from Blackstone in 2019.

Japanese Homes Targetted

Since that deal two years ago, the Allianz has repeatedly added assets to the strategy to the point where it now owns 6,000 homes across 134 multi-family properties in Japan. Desai, in his appearance on MTD TV this year tied investor recognition of multi-family investments to a change in perception wrought by the effects of the COVID-19 wave.

“I think the pandemic has reminded us that residential is a core real estate sector,” Desai said. “People are looking to rent, and especially with the pandemic, they are looking to cut down on travel and want to make it easy to access their place of work.”

Many of Allianz’ competitors seem to agree, with LaSalle Investment Management announcing last month that it had acquired seven residential properties in Japan as it secured $289 million in funding for a new investment vehicle targetting opportunities in the country.

Also last month, Chicago-based fund manager Heitman entered the Japanese multi-family market for the first time with the purchase of eight rental apartment properties in Tokyo for an undisclosed amount.

Managing Third-Party Capital

The announcement today marks the first time that Ivanhoe Cambridge has invested with Allianz Real Estate in the region, but the second time that the property fund management division of the European insurer, which a few years earlier was primarily makings its Asia investments as a limited partner in funds set up by other managers, has recruited a like-minded institutional partner to back a strategy which it will administer directly.

In June 2020 Allianz set up Allianz Real Estate Asia-Pacific Core I (AREAP Core I), a $2.3 billion fund targetting core investments in office, logistics, multi-family and student housing in the region.

With Korea’s NPS joining AREAP Core I as Allianz initial partner, the fund went on to purchase a half-stake in Singapore’s OUE Bayfront office block in January of this year for $477 million.

During that same month, the fund purchased a 90 percent stake in Innov Star, an office property in Shanghai’s Zhangjiang High Tech Park for a reported RMB 2.2 billion ($345 million).

Beds, Sheds and Tech Parks

For Ivanhoe Cambridge, a division of Caisse de Dépôt et placement du Québec, the venture with Allianz Real Estate further expands the geographic and property sector scope of one of the most active backers of property investment strategies in the region.

Having already invested more than $4.6 billion in property platforms and assets across Asia Pacific, the venture with Allianz is Ivanhoe Cambridge’s second investment in Japan after it launched a $400 million last mile logistics joint venture with PAG in January of this year.

Before turning to the residential side of the ‘beds and sheds’ approach adopted by many fund managers in the region with today’s multi-family announcement, Ivanhoe Cambridge had long established itself as a leading backer of shed strategies through its early investment in Sydney-based logistics platform Logos (now part of ARA Asset Management).

During this year the Montreal-based investor has also pursued tech parks through a $500 million venture with India’s Embassy Group announced in March and in June took an 80 percent stake in a portfolio of life science research facilities in the central Indian city of Hyderabad with local investment manager Lighthouse Canton.

Green Focus

With Allianz Real Estate in April having vowed to cut carbon emissions caused by its portfolio by 25 percent by the end of 2025, and pledged during the same month to achieve carbon neutrality in its properties by 2040, the Japan venture announced today has an explicit sustainability element.

The partners said, without specifying benchmarks, that the multifamily strategy will target use of renewable energy, implement green leases and aim for green certification of assets while also raising energy efficiency standards within the portfolio and supporting community sustainability initiatives.