‘It Takes A Decade’: How A $124B Real Estate Giant Rebuilt Itself

How do you reposition one of the world’s largest real estate investors if you think the way people use buildings and how companies buy and build them are out of sync? And what happens when the market suddenly turns not-so-benign?

“It takes a decade to move a portfolio that was mainly office and retail,” AXA Investment Managers Global Head of AXA IM Alts Isabelle Scemama told Bisnow, explaining how the Paris-headquartered investor moved into sectors that would see growth and resilient income, and how it plans to weather the current volatility. 

The investment division of French insurance giant AXA got where it is by building large-scale platforms in sectors that other institutional investors found too complex: first of all, in logistics, and then, in various iterations of rented residential like multifamily, student accommodation and senior living.

More recently, it has made a big push into healthcare, life sciences and data centres. 

Today AXA has €117B ($124B) of real estate assets under management, with about $42B of that its own money, according to PERE, making it the sixth-largest direct owner of real estate in the world. 

About €25B of that €117B is real estate debt, positioning it as one of the largest nonbank real estate lenders in the world as well. Scemama said AXA plans to do even more lending at a time banks are pulling back.

The investment division will carry on its big play in U.S. logistics, extend its residential footprint, and make moves in the office world in places where new assets continue to see strong demand and old assets are starting to be repriced, offering the possibility of making money by retrofitting secondary stock. 

Scemama joined AXA in 2001 after more than a decade in real estate banking at BNP Paribas. In 2005, she set up its real estate lending business. She took over as head of the real estate investment division in 2014, and by 2017, she had taken the leadership of the entire real assets division.

From 2020, she has been global head of AXA IM Alts, which manages €184B in assets in real estate, infrastructure, private debt and hedge funds. 

Upon taking over the real estate business, she accelerated the move to invest more in sectors like residential and logistics by creating large platforms — sometimes in joint ventures with specialist partners, sometimes investing on its own, but, in all cases, building up specialist in-house teams.

AXA’s real estate division now employs 350 people in 13 countries from the U.S. to Australia, with a big proportion in Europe. 

“To move something very well-developed takes time, you have to have strong views, you have to take a long-term view and have the courage of your convictions, but you don’t want to be a forced buyer,” Scemama said. 

“Size matters in this market, and if you want to underwrite these platforms you need capital. We’ve got the balance sheet, and we’ve been able to incubate these platforms and then grow them.”

One big example of this has been its push into U.S. logistics. AXA agreed to buy $2.1B of logistics assets from Dermody Properties, an 8.5M SF portfolio spread across 11 markets, in December 2021. That deal took its U.S. logistics exposure to $3.4B, and the sector now makes up approximately 80% of its U.S. real estate portfolio, Scemama said.

“The U.S. remains the largest and most liquid real estate market in the world, and we’ll continue to be active there,” she said, adding the focus will remain on logistics in the U.S. “We’re very happy with the performance of the portfolio, the income has been growing at double-digit rates.”

In Europe, AXA bought specialist life sciences developer and manager Kadans Science Partner from Oaktree Capital in 2020 for a reported €500M. In June 2021, it raised a €1.9B fund from investors across the world to invest in European life sciences.

AXA has now formed a joint venture with Canary Wharf Group to build an 823K SF life sciences tower in the east London district of Canary Wharf, which will have a cost of around £500M ($599M).

The division has also been busy in the residential sphere, building up multi-asset multifamily portfolios across Europe, with a particular focus on the Nordic nations and further portfolios in France, Spain and the Irish capital of Dublin. In the UK, it bought Dolphin Square, a rented residential building comprising 1,223 apartments built in the 1930s, for more than £800M from private equity firm Westbrook Partners in 2020.

It is spending five years and another £200M upgrading the building, including replacing windows and heating systems, to improve the energy-efficiency of the building.

AXA’s residential portfolio now totals more than €28B, making up about a quarter of its total portfolio. Scemama said that will continue to be major part of its acquisition strategy. 

“The focus for us is always on the more affordable part of the market, where rents are sustainable,” she said. “But it is an asset class where we will deploy more, the balance of supply and demand remains attractive.”

It is actively looking for more opportunities in the UK, she said.

On the current market volatility, Scemama said, “I’m sleeping at night.”

At the end of 2022, transaction volumes in U.S. and major European markets dropped by around 40%, a signal that investors were wary of an impending “calamity”, she explained. But now the expectation is that inflation will start to recede and any recession will be short and shallow.

“I wouldn’t say people are bullish, but there is more confidence at the start of this year,” she said. “People are expecting a softer landing. And our portfolio is diversified into the sectors that are best performing.”

AXA is likely to increase its lending in the current market since the retreat of other lenders gave it the opportunity to provide senior debt at higher margins than was previously the case.

“The banks are closed,” she said. 

Scemama said market distress created by new banking conditions is beginning to manifest itself. While it could take a while to shake out, she said, lenders are likely to bring forward opportunities more quickly than in the wake of the 2008 financial crisis. 

“It always takes time to materialise. Real estate lags other sectors because you have to wait for the loan to mature before you start to see delinquencies,” she said. “But it will happen more quickly than during the last crisis. The way that information is transmitted around the market, it is more transparent and more liquid, and that will speed things up.”

Scemama said AXA is expecting to see opportunities arise in the office sector, particularly in Europe, where tighter sustainability regulation means offices must  be retrofitted to meet the needs of both regulators and office tenants. That trend is not as advanced in the U.S., where sustainability regulation is not as widespread and lack of land scarcity has brought the development of more office space.

Office now makes up about 35% of AXA's portfolio. For the best quality offices in European capitals, like the 22 Bishopsgate scheme it built in London or offices in central Paris, there is still strong demand, she said. 

“I had two companies ringing me up, fighting over space in one of our Paris buildings. Vacancy in central Paris is virtually nonexistent,” Scemama said.

“Companies have their own net-zero targets, and if you’re an office-based company, your building is a big part of your carbon emissions. You can pass on inflation through rent increases in the best buildings because, for a company, the cost of space is only a small part of their overall costs. The sector is facing disruption, but it is not going to zero.”