Commerzbank exit from property lending no surprise to analysts

Commerzbank's decision to pull the plug on commercial real estate lending, announced on Tuesday, has not come as a surprise to many analysts, who say it has 'always been short of equity'. 'In addition, there is also an 'accounting trick' if you wind a business down like this; it helps reduce earnings volatility,' one Frankfurt-based analyst, who asked not to be identified, told PropertyEU.

Nonetheless, the bank's exit from commercial real estate lending is a blow to the sector, Frank Pörschke, head of Germany at JLL, told PropertyEU. 'It is certainly a bad message for the market that Commerzbank changed its mind and will refrain from lending again. There is certainly need for more loans from banks as other sources of capital cannot bridge the gap,' he said.

To make matters worse, Commerzbank's decision comes at a time when the German real estate market is 'very stagnant', one banking analyst, who asked not to be identified, told PropertyEU. 'Banks have really scaled back their lending, a lot of them are doing hardly any new business,' he said.

There were just EUR 5.25 bn of commercial real estate deals in Germany in the first quarter of 2012, broadly the same as in 2011, but almost a threefold fall on the EUR 13.5 bn of deals transacted in the first quarter of 2007, according to C&W.

And the market will not improve any time soon, an analyst warned: 'Commercial real estate lending is viewed as an un-sexy asset class that banks are bailing out on. That sentiment will continue for some time, leaving the market subdued.' Subsequently, it will be challenging for Commerzbank staff to find new jobs in the current climate, he added.

Commerzbank's announcement that it was pulling out of commercial real estate lending came just five days before it was due to launch a new core bank segment focusing on real estate and ship finance. Board chairman Martin Blessing, cited ‘the background of the ongoing financial and sovereign debt crisis, an end to which is not foreseeable’ and the ‘uncertain regulatory environment’ as the drivers behind the bank’s decision to dismantle its real estate lending and ship finance operations.

In addition, the lender said that the high capital and rising liquidity requirements under Basel III were also factors in its decision. The bank will continue to offer real estate financing for private and corporate customers.

Commerzbank has already earmarked EUR 131 bn of assets for disposal, including EUR 31 bn in non-core real estate, EUR 4 bn in non-core residential and EUR 96 bn in public finance.