ANALYSIS: German and UK lenders go large

German and UK real estate lenders are supersizing their loans as competition across the sector ramps up.

Turning their backs on the silent austerity that prevailed in the sector just two years ago, many lenders are embracing mega loans – and gaining the competitive edge they crave in the process.

Banks have become much more flexible – and ambitious – than many believed possible, largely in order to increase their overall loan volume against a backdrop of shrinking margins. Then, ‘big ticket’ loans were typically underwritten by four to five banks. Today, such deals are more likely to be financed by just two banks – and loan pricing is aggressive.

Such is the story in the UK, according to David Lebus, director of debt advisory, UK capital markets, at JLL in London. ‘The number of people willing to provide that underwrite has increased, as the investment banks are now all back and active. It’s certainly possible now to get a single lender to underwrite €500 mln or more for the right borrower, in the jurisdiction, and subject to their gaining comfort around sell-down.’

Lloyds bounces back
Lloyds Bank, which received a £20 bn bailout from the UK government in 2008, following its ill-fated acquisition of HBOS, has also bounced back to become a major real estate lender. It underwrote £7.4 bn in new commercial real estate business last year, up slightly on £6.9 bn in 2013. It does not have a set target for this year, according to Marty Green, head of private real estate corporates at Lloyds Bank commercial banking in London.

‘We are led less by targets than by risks and returns,’ said Green. ‘The market is evolving and we are treating real estate as a core part of our structure. We focus on the more conservative end of the market and we have no upper limit on the size of underwrite we can deliver, so we have the appetite and ability to support some very large transactions outside of a club.’

UK banks ‘have a huge competitive advantage’ in that they offer clearing bank services to everyone and have a wide range of existing customers’, according to William Newsom, senior director of Savills’ valuation team in London. ‘From a borrower’s point of view, it is easier to do all your borrowing via one provider,’ he added.

German banks also scaling up
The trend of underwriting ever-larger loans is also gaining traction in Germany, according to Markus Kreuter, the new head of the debt advisory team at JLL in Germany. ‘The notable trend in Germany this year is that German banks are increasing the size of the loans that they are underwriting. Today, some of the big lenders, such as Helaba, are willing to underwrite loans of between €250 mln and €300 mln or above, compared to up to €150 mln in 2010.’ Typically, around half of the loan will then be syndicated, Kreuter added.

However, ‘big ticket’ deals are not easy to come by, according to Michael Kröger, head of international real estate finance at Helaba in Frankfurt. ‘We’ve underwritten as much as €500 mln for the right deal in the past but there aren’t so many deals where you can underwrite €300 mln or above. That said, our average loan size is growing.’

It is a far cry from a couple of years ago when many lenders would only lend between €20 mln and €50 mln on their own, or club together for loans of around €100 mln, according to Frank Nickel, chairman of corporate finance for the EMEA region at Cushman & Wakefield. ‘Anything above €100 mln was extremely hard to finance then,’ he said. ‘This year, though, deals have got bigger than ever, as has the size of the loans themselves. German lenders continue to have an advantage because they can refinance at the lowest level via the Pfandbrief market.’

Sara Seddon Kilbinger
Correspondent German-speaking countries