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'It Takes A Decade': How A $124B Real Estate Giant Rebuilt Itself – Bisnow



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. 



Courtesy of AXA IM Alts

AXA’s Isabelle Scemama

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. 


Courtesy of AXA

A rendering of AXA and Canary Wharf’s North Quay life sciences building

“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.


Courtesy of AXA

AXA’s Dolphin Square building in London

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. 


The 22 Bishopsgate office building in London developed by AXA

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.”

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Commercial real estate is in trouble. A banking crisis will make it worse.



If there is anything commercial real estate owners don’t need right now, it’s a banking crisis.

Big owners of property around the country were already under pressure from the Federal Reserve’s aggressive campaign to raise interest rates, which raised borrowing costs and lowered building values. They also had lots of space still sitting empty in city centers as a result of more hybrid and remote work arrangements resulting from the pandemic.

Now they face the prospect that beleaguered banks, especially smaller ones, could get more aggressive with lending arrangements, giving landlords even less room to breathe as they try to refinance a mountain of loans coming due. This year, roughly $270 billion in commercial mortgages held by banks are set to expire, according to Trepp, and $1.4 trillion over the next five years.

“There were already liquidity issues. There were fewer deals getting done,” Xander Snyder, First American senior commercial real estate economist, told Yahoo Finance in an interview. “Access to capital was getting scarcer, and this banking crisis is almost certainly gonna compound that.”


Most of the banks that hold commercial real estate mortgages are small to mid-sized institutions that are experiencing the most pressure during the current crisis, which began this month with the high-profile failures of regional lenders Silicon Valley Bank and Signature Bank. The pressure on regional banks continued Friday, stoked by intensifying investor pressure on German lender Deutsche Bank as the cost to insure against default on its debt soared.

Smaller banks began ramping up their exposure to commercial real estate in the aftermath of the 2008 financial crisis, which was triggered by a housing bust, and stuck with it even after the pandemic emptied out many city-center properties and other forms of borrowing provided by commercial mortgage backed securities and life insurers dried up.

Signature was among the banks that made some of these bets, becoming an aggressive lender in New York City to office towers and multifamily properties. By the end of 2022 it had amassed nearly $36 billion in commercial real estate loans, half of which were to apartments. That portfolio comprised nearly one-third of its $110 billion in assets.

More than 80% of all commercial real estate loans are now held by banks with fewer than $250 billion in assets, according to a report by Goldman Sachs economists Manuel Abecasis and David Mericle. These loans now comprise the highest percentage of industry loan portfolios in 13 years, according to John Velis of BNY Mellon.

“There’s a lot of commercial real estate that’s been financed over the last few years,” BlackRock Global Fixed Income CIO Rick Rieder told Yahoo Finance on Wednesday. “When you raise rates this quickly, the interest-sensitive parts of the economy, and particularly where there’s financing or leverage attached to it, then that’s where you create stress. That’s not going away tomorrow.” Commercial real estate, he added, doesn’t represent the same type of systematic risk to the economy as housing did during the 2008 financial crisis but there are “isolated pockets that can lead to contagion risk.”

Two early warnings of the danger that rising interest rates pose to commercial real estate came last month. Giant landlord Columbia Property Trust defaulted on $1.7 billion in floating-rate loans tied to seven buildings in New York, San Francisco, Boston and Jersey City, N.J. That followed a default by giant money manager Brookfield Asset Management on more than $750 million in debt backing two 52-story towers in Los Angeles.

. Leaders of the Senate's banking committee on Thursday, March 23, warned former chief executive officers at Silicon Valley Bank and Signature Bank that they expect them to testify before the panel, saying in a letter to each: “you must answer for the bank's downfall.” (AP Photo/Seth Wenig, File). Leaders of the Senate's banking committee on Thursday, March 23, warned former chief executive officers at Silicon Valley Bank and Signature Bank that they expect them to testify before the panel, saying in a letter to each: “you must answer for the bank's downfall.” (AP Photo/Seth Wenig, File)
Signature Bank was a big commercial real estate lender in New York City. It was seized by regulators earlier this month. (AP Photo/Seth Wenig, File)

Forced sales of more trophy buildings at large discounts are expected in the coming years as owners struggle to refinance at affordable rates. “Sellers will want the price that everyone was getting [back] in December 2021, and buyers are kind of even afraid to buy something right now cause they don’t even know what the price of these buildings are,” Snyder said.

Banks were already squeezing terms on commercial real estate loans before this month’s chaos. According to the Federal Reserve’s latest senior loan officer opinion survey, nearly 60 percent of banks reported tighter lending standards in January for nonresidential and multifamily property loans.

“Bank lending standards had already tightened significantly over the last few quarters to levels previously unseen outside of recessions, presumably because many bank risk divisions shared the recession fears that have been widespread in financial markets,” according to a note last week from Goldman Sachs. More tightening of lending standards expected as a result of new bank stresses could slow economic growth this year, Goldman said.

Federal Reserve Board Chair Jerome Powell arrives to speak at a news conference at the Federal Reserve, Wednesday, March 22, 2023, in Washington. (AP Photo/Alex Brandon)Federal Reserve Board Chair Jerome Powell arrives to speak at a news conference at the Federal Reserve, Wednesday, March 22, 2023, in Washington. (AP Photo/Alex Brandon)
Federal Reserve Board Chair Jerome Powell arrives at a news conference on Wednesday in Washington. (AP Photo/Alex Brandon)

Fed chair Jerome Powell agreed with that view at a Wednesday press conference following the announcement of another rate hike. He said he also anticipates a tightening of credit conditions as banks pull back, which will help cool the economy. “We’re thinking about that as effectively doing the same things that rate hikes do,” he said.

But he said regional banks with high amounts of commercial estate loans were not likely to become the next Silicon Valley Bank.

“We’re well aware of the concentrations people have in commercial real estate,” he said. “I really don’t think it’s comparable to this. The banking system is strong. It is sound. It is resilient. It’s well-capitalized.”

The larger commercial real estate world is still absorbing the shock of the Fed’s aggressive campaign, according to Marcus & Millichap CEO Hessam Nadji. The effects may not pose a systemic risk, he added, but they will add to the industry’s many challenges.

“Commercial real estate has been through a pandemic, very rapid recovery, then massive tightening of financial conditions unlike anything we’ve seen in modern history,” he told Yahoo Finance Thursday. “The last three years have moved the industry through a significant rollercoaster.”

Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv


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The real estate market is rallying but why?



A few weeks back, I went out on a limb and said that all signs were pointing to the fact the real estate market was waking back up again.

I spoke of houses selling in multiple offers a day or two after going to market. Colleagues around the water cooler who were telling me of clients coming back in out of the wind, ready to think about real estate again.

Buyers were showing a willingness to come in off the sidelines, I said. Could it be that they think the worst is now over?

Well, turns out that theory of mine wasn’t just born of “hopium” — incidentally, my new, most favourite word to come out of the past few months of real estate downtime.

No, no. Hopium be damned — the real estate market is alive again.

By Wednesday of last week — the first days post-March break, which is unofficially the start of the spring market — I personally witnessed four midtown houses go within hours of being listed.

What might we glean from that?

Could it be that people are feeling optimistic?

Clearly consumer sentiment has improved. Though if a year ago someone had told me there could be excitement at seeing rates creep just below 5%, I would have told them to give their head a shake.

But those rates have clearly started to normalize.

Assisted by the fact that markets are evidently now considering the banking meltdown south of the border may serve to bring about the great pivot sooner than late-2024 as consensus had previously thought.

Even the permabears seem to acknowledge we are witnessing a rally of sorts.

And while it’s hard to know why, the reality is that life will always goes on. The three D’s of real estate — death, divorce and debt — are immune to consumer sentiment. And with record lows in transaction volume, there is without a doubt pent up demand waiting to greet spring.

But this appears to be more than that. This seems to also relate to a belief that the worst is now over and while it has certainly been bumpy, better days lie ahead.

But why is that?


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New York Fed board member warns of commercial real-estate risks



NEW YORK, March 24 (Reuters) – An executive who also serves on the board overseeing the New York Federal Reserve warned on Twitter of potentially systemic problems in the real estate finance market and called on the industry to work with authorities to avoid things getting out of hand.

Noting there is $1.5 trillion in commercial real estate debt set to mature in the next three years, Scott Rechler, who is CEO of RXR, a large property manager and developer, tweeted: “The bulk of this debt was financed when base interest rates were near zero. This debt needs to be refinanced in an environment where rates are higher, values are lower, & in a market with less liquidity.”

Rechler said he’s joined with the Real Estate Roundtable “in calling for a program that provides lenders the leeway and the flexibility from regulators to work with borrowers to develop responsible, constructive refinancing plans.”

“If we fail to act, we risk a systemic crisis with our banking system & particularly the regional banks” which make up over three quarters of real estate lending, which will in turn put pressure on local governments that depend on property taxes to fund their operations, Rechler wrote.


The executive weighed in amid broad concern in markets that aggressive Fed rate hikes aimed at lowering high inflation will also break something in the financial sector, as collateral damage to the core monetary policy mission.

The Fed nearly held off on raising its short-term rate target on Wednesday after the collapse of Silicon Valley Bank and Signature Bank rattled markets. The failure of Silicon Valley Bank was linked to the firm’s trouble in managing its holdings as markets repriced to deal with higher Fed short-term interest rates.

The real-estate sector has also been hard hit by Fed rate rises and commercial real estate has also been hobbled by the shift away from in-office work during the pandemic.

Also weighing in via Twitter, the former leader of the Boston Fed, Eric Rosengren, offered a warning on real estate risks, echoing a long-held concern of his dating back a number of years.

Pointing to big declines in real estate investment indexes, he said “many bank lenders will be pulling back just as leases roll, with high office vacancies and high interest rates. Regional bank shock and troubled offices will be negatively reinforcing.”

Real estate woes are on the Fed’s radar, but leaders believe banks can navigate the challenges.

Speaking at a press conference Wednesday following the Fed’s quarter percentage point rate rise, central bank leader Jerome Powell said “we’re well-aware of the concentrations people have in commercial real estate,” while adding “the banking system is strong, it is sound, it is resilient, it’s well-capitalized,” which he said should limit other financial firms from hitting the trouble that felled SVB.

Rechler serves as what’s called a Class B director on the 12-person panel of private citizens who oversee the New York Fed. That class of director is elected by the private banks of the respective regional Feds to represent the interest of the public. Each of the quasi-private regional Fed banks are also operated under the oversight of the Fed’s Board of Governors in Washington, which is explicitly part of the government.

The boards overseeing each of the regional Fed banks are made up of a mix of bankers, business and non-profit leaders. These boards provide advice in running large organizations and local economic intelligence. Their most visible role is helping regional Fed banks find new presidents, although bankers who serve as directors are by law not part of this process.

Central bank rules say that directors are not involved in bank oversight and regulation activities, which are controlled by the Fed in Washington.

Reporting by Michael S. Derby; Editing by Andrea Ricci

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