Allianz pivots toward medical offices in debt portfolio diversification

Allianz Real Estate has a strong conviction about medical offices, having originated a $234 million loan on a 27-property portfolio in the sector on behalf of a Nuveen joint venture in August.

Mike Cale, co-head of debt at the firm, tells Real Estate Capital USA that its decision to originate the loan was founded in its long-term relationship with Nuveen, a prominent global sponsor. The other main reason was Allianz’s belief about the long-term performance potential for medical offices.

“The medical office component is part of what made the deal attractive from an asset standpoint,” Cale says. “Given what happened with the pandemic, we feel this is a long-term sustainable approach to the business. We look to invest through the cycle, and we believe that the medical offices sector is a long-term opportunity.”

Allianz originated the seven-year loan, which has both floating- and fixed-rate tranches, for the Nuveen US Cities Office Fund. The portfolio comprises 27 Class A and Class B medical office properties in 13 states. About 70 percent of the loan, or approximately $163.8 million, is fixed-rate, while the remainder is floating rate. The Nuveen partnership acquired the properties this year from IRA Capital.

“ Given what happened with the pandemic, we feel this is a long-term sustainable approach to the business ”
Mike Cale, Allianz Real Estate

Cale adds: “We try not to get too caught up in current events, but we do think the office dynamics are different than they were pre-covid. We’re trying to assess what that means for us. We certainly haven’t crossed traditional offices off the list, but will take a hard look at tenancy, sponsorship and equity in the deal.”

Cale adds that the firm is experiencing extremely high demand in the multifamily and industrial sectors, for logical reasons.

“We are happy to be on pace with where we want to be,” Cale says, noting that the firm originated $2 billion of loans in 2019. “This is more of a normal year for us.” The firm has committed close to $1.3 billion of capital to 27 transactions this year, surpassing 2020’s $1.1 billion.

“Industrial and logistics properties continue to be at the forefront of what we’re looking at,” he says. “Many institutions have always been underallocated to the industrial sector.”