Berlin Hyp targets €3b in new business in 2014

German real estate lender Berlin Hyp is targeting €3 bn in new business in 2014, incoming chairman of the board Jan Bettink told PropertyEU.

Bettink, who takes on the role from the beginning of this year, retired from his position as management board member of Landesbank Berlin at the end of November. He was a member of Berlin Hyp’s management board from 2002 to 2010 and already served as its chairman from 2006 to 2010.

Bettink takes up the baton at a time when a shake-up is under way in Germany's financing sector. DSGV, which owns the Landesbank Berlin Group, including Berlin Hyp, agreed in 2012 to spin off Berlin Hyp as a separate real estate financing bank, effective January 2014.

Together, the two banks did €3.5 bn of new business in the first nine months of 2013, heading towards the year-end target of €4 bn. ‘In 2014, Berlin Hyp will run the business on a stand-alone basis and we plan new business of up to nearly €3 bn. However, we will concentrate more on quality than on quantity and volume,’ he said. ‘The close partnership with savings banks will have an even greater strategic significance in the future. We will expand our scope of products and further intensify the partnership.’

Diversification
Berlin Hyp will concentrate on the German market, although it will also home in on Poland, France and the Netherlands in order to diversify its portfolio, Bettink said. Around 80% of its business is currently in Germany, with the remaining 20% in France, the Benelux region and Poland. The bank prefers to finance assets such as offices, residential, shopping centres and logistics, although it will also finance hotels ‘on a selective basis’, Bettink added.

As some German banks continue to tighten their lending due to regulatory issues and a higher risk sensitivity, 2014 will see alternative financial instruments gathering pace, according to Bettink: ‘The lending gap has to be filled with equity or by using alternative financial instruments, such as forward financing, the capital markets, CMBS structures or mezzanine capital, which are mostly more expensive,’ he said.

Subsequently, the market is likely to see more partnerships emerge next year between traditional and alternative lenders - such as insurers and debt funds - in Germany, according to Bettink. ‘The emergence of new players provides good opportunities for cooperation between banks and new lenders because new lenders bring equity to the table, whereas banks have the know-how to structure complex financings,’ Bettink said.

However, new lenders will not fill the funding gap in niche markets such as development, Bettink warned: ‘These lenders mostly offer financing within the senior loan market, which is already very tight and competitive. In addition, it is not clear how sustainable their engagement in the market is because it is driven by regulation and a low interest rate environment. Nevertheless the real estate financing sector will remain an important business field for banks, even if they offer more short-term financing in the future, due to regulation and low interest rates,’ he said.

Solo versus club deals
Interestingly, while Berlin Hyp is not averse to club deals, it has already financed some big-ticket deals without needing to resort to them: ‘We are able to finance big tickets on a stand-alone basis, such as the Deutsche Annington deal in 2013, where we provided the financing for 24,000 residential units in Germany’s Ruhrgebiet, ’ Bettink said. ‘However, we also realise financing through club deals or syndicate financing - that’s normal business. Despite that, the total amount a bank is willing to finance depends on its specific risk strategy, the investors’ rating and know-how and the real estate (portfolio) itself.’

But there are challenges ahead, Bettink warned. ‘Monetary policy has led to historically low prime rates. As long as central banks' exit strategies remain unclear, there will be a continued risk of a misleading asset allocation.’

The combined loan book of the real estate finance division of Berlin Hyp and Landesbank Berlin stood at €25 bn as of end-September 2013. Following its repositioning as a separate entity, Berlin Hyp’s loan book will total about €20 bn. Berlin Hyp’s spin-off is to be fully completed by 2015.

Sara Seddon Kilbinger
Correspondent Germany, Switzerland and Austria