Editor's Choice: Lenders shake off GFC legacy

The upcoming Expo Real trade fair in Munich next week marks the sixth anniversary of the collapse of Hypo Real Estate – the unofficial starting shot for the lean years in the European real estate industry.

But as the seventh year approaches amid economic uncertainty, the property financing sector has clearly turned a corner. Europe’s bloated banks that had gorged on real estate in the boom years have accelerated their sales of loans and distressed portfolios. Moreover, the rush by banks to offload their loan books is expected to continue in the run-up to the Asset Quality Review by the European Central Bank which market watchers say will mark the end of the ‘extend and pretend’ era.

Across Europe, a simpler version of CMBS is making a comeback, culminating recently in a new structure with radically different terms for the Coeur Défense office complex in Paris. And, as our special report in the October edition of PropertyEU Magazine reveals, in Germany alternative lenders are being squeezed out in some corners as traditional German banks get their mojo back.

After several years of ultra-conservative lending, German lenders are finally willing to take on more risk as competition in Germany’s lending space intensifies. Indeed, the latest signs are that the window of opportunity for alternative lenders such as insurers and debt funds is already starting to close in Germany.

ALTERNATIVE LENDERS ARE BEING SQUEEZED IN GERMANY
Although non-traditional lenders have increased their market share over the past two years to between 10% and 15% of the lending market, many of them are now struggling to keep pace with traditional providers of finance. In the past, the advantage for alternative lenders was that banks had higher funding costs than they did. But this is no longer the case due to very low swap rates and interest rates. Also, the returns are too low for many alternative lenders, with floating-rate loans (over Euribor) generating less than 2%.

Some market watchers are now predicting that alternative lenders will have a hard time increasing their market share in Germany and that a share of 30% of the overall lending volume is an unrealistic target.

Indeed, German pensions group BVK is considering to start lending outside of Germany on the back of increasing pressure on margins for real estate financings in Germany, according to Constantin Echter, head of Fixed Income Investments at BVK.

‘Spreads and margins came down massively in the recent past and we have to take this into consideration,' Echter told PropertyEU in an interview. 'For us, it does not mean that we will increase the investment risk - we want to remain in the core space, but we are evaluating the possibility to go to other markets such as Paris for instance which offer higher spreads.’

Bayerische Versorgungskammer (BVK), which manages some €65 bn of pension assets on behalf of 1.9 million people in Germany, made its first step into real estate lending in 2011 in an effort to lift its returns and diversity its investment portfolio.

All this does mean, though, that ultimately nothing has changed in the German lending market. Co-operation between traditional lenders and their alternative counterparts is set to become a mainstay in the post-crisis financial order. And the sale of WestImmo and pbb Deutsche Pfandbriefbank – two other victims of the financial crisis – will also likely shake up the current landscape as the survivors step forward and consolidate their positions.

POST SCRIPTUM
The PropertyEU team will be out in force again at Expo Real in Munich next week. In addition to our monthly magazine, we are presenting the third edition of our Top 100 Investors which provides a ranking and overview of the leading real estate companies and investment managers in Europe. A novelty in this year’s edition – which highlights more than 200 players active in the European real estate industry – is an overview of the biggest dealmakers to have emerged from our research. We have created four separate categories for the winners of the crisis: the big US opportunistic investors, the most successful listed European property companies, the leading investment managers affiliated to financials, insurers or listed asset managers and the boutique firms.

Last year our Top Investors supplement was a huge success at Expo Real and the last copies disappeared well before the fair closed its doors. But if there are no copies left in the press bins this year, do not despair. Our new digital database of the 100 biggest and most active real estate investors in Europe is going live in October.

This year in Munich, the PropertyEU editorial team will also be scouring the fair halls for stories for the Expo Real Daily News that we produce for the organisers. And our PropertyTV team will be on hand at our stand at A1 535 to spotlight your deal and expertise. Feel free to come by to say hello or to pick up a copy of our magazine or Top 100 Investors.

We look forward to seeing you!

Judi Seebus
Editor-in-chief

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