Capitalising on change: AXA IM Alts' strategic vision for Real Estate Private Debt

With the rise of Real Estate Private Debt in a rapidly evolving financial landscape, AXA IM Alts is positioning itself as a leader in European Real Estate Private Debt. The current economic climate presents a unique set of opportunities for institutional investors, prompting a strategic shift from equity to debt investments. This article explores the compelling reasons for investing in this asset class and highlights AXA IM Alts’ achievements in this space.

Interest rates on the decline: A silver lining for Real Estate

Despite ongoing market volatility and persistent inflation, there is growing consensus that interest rates are trending downwards, which bodes well for the real estate sector.

As predictions for the Commercial Real Estate (CRE) lending market in 2025 unfold, a significant shift towards alternative lenders and a more nuanced tiering of the market is anticipated. This evolving landscape is expected to create attractive entry points for investors looking to capitalise on emerging opportunities.

The rise of alternative lenders

As traditional banks retreat from certain lending activities, non-bank lenders are set to expand their market share. Their growth will largely depend on their ability to fundraise in a risk-averse environment. Recent data from Real Estate Capital shows that of the €9.2 billion(3) in European Real Estate lending deals recorded from September to mid- November last year, most was directed towards the student accommodation, logistics and residential sectors.

As we enter a “lender’s market”, characterised by reduced liquidity and rebased valuations, alternative lenders are well-positioned to capitalise on attractive entry points. The cost of debt has risen across European jurisdictions, equalling or surpassing historical yields on Real Estate assets. Moreover, the impending “maturity wall”, which refers to extended loan maturities due to declining transaction volumes, offers opportunities for lenders with capital to deploy, particularly in targeting riskier return profiles than those pursued by traditional banks.

Market dynamics: Navigating challenges and opportunities

While lower interest rates may improve refinancing prospects for secondary stock owners, challenges remain. Further valuation declines and higher rates have impacted capital structures, leading to a reduced appetite among lenders for “extend and pretend” strategies. However, these conditions could positively impact the market by boosting transaction volumes and supporting price discovery.

The CRE debt market continues to present attractive returns, with yields ranging from 5% to 8% on an unlevered basis. As nearly $1.9 trillion in CRE debt is set to mature by the end of 2026(4), the anticipated decline in interest rates should alleviate pressure on institutions, allowing them to deploy capital more effectively. This dynamic environment positions the global CRE market for growth, making it an opportune time for both debt and equity investors to engage.

ESG as a driving force in lending decisions

ESG considerations are increasingly becoming a critical aspect of the underwriting process. Stricter regulations are accelerating the need for property owners to address potential obsolescence in their portfolios. Lenders must ensure they have the necessary expertise to underwrite green and sustainability-linked financing, highlighting the importance of specialised knowledge in today’s market.

An opportunity for investors

Current market conditions have made European real estate private debt highly attractive for investors around the globe. For institutional investors, this environment presents a unique opportunity to rebalance existing local real estate exposure from equity to debt, earning yields equal to or exceeding those of equity investments while benefiting from more stable debt instruments. This shift allows for diversified exposure across various European countries and real estate sectors, including emerging asset classes such as life sciences, data centres, self-storage and senior living. These sectors exhibit low supply and high demand, resulting in low vacancy rates and promising rental growth, making real estate debt a sensible starting point for those seeking to broaden their investment horizons beyond traditional asset classes.

Seizing opportunities: AXA IM Alts and the evolution of the CRE Dept Market

In an era marked by economic fluctuations and changing investor preferences, AXA IM Alts has established itself as a leader in the CRE debt sector with a record €4 billion(5) raised for its global Commercial Real Estate debt platform in the past year alone. Over the same period, AXA IM Alts deployed approximately €3 billion(6) into a diverse range of investment opportunities, including senior whole loans and transitional lending facilities. The firm has successfully attracted new clients globally, with over a third of the raised funds coming from new investors. Its investments have primarily focused on high-quality assets in the logistics, residential and data centre sectors, which are supported by megatrends such as digitalisation and decarbonisation. With global AUM of approximately €24 billion(7) in private real estate debt, AXA IM Alts expects to continue leveraging its robust track record and deep sector expertise to identify opportunities in the evolving market and provide clients with secure income levels while aligning with macroeconomic and demographic trends.

Our conviction is that fundamentals supporting the CRE debt sector will persist in 2025. As transaction volumes increase and the gap between buyer and seller price expectations narrows, the opportunities for CRE lenders are set to expand. The anticipated improvements in refinancing prospects, particularly for high-quality assets, are likely to further bolster the market, making it an attractive environment for both debt and equity investors.

Antonio De Laurentiis, Global Head of Private Debt, Member of Real Estate Management Board, AXA IM Alts

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(1)AXA IM Alts data (unaudited) as at 31 December 2024.
(2)AXA IM Alts data (unaudited) as at 31 December 2024.
(3)LOOK AHEAD 2025: AXA IM Alts’ de Laurentiis on tiering, fundraising and loan-on-loan.
(4)LOOK AHEAD 2025: AXA IM Alts’ de Laurentiis on tiering, fundraising and loan-on-loan.
(5)AXA IM Alts data (unaudited) as at 31 December 2024.
(6)AXA IM Alts data (unaudited) as at 31 December 2024.
(7)AXA IM Alts data (unaudited) as at 31 December 2024.