Eurohypo re-organises real estate financing

Eurohypo, part of the Commerzbank Group, announced plans this week to realign its commercial real estate (CRE) business and focus on its value-generating core business. The bank wants to ensure stable returns with lower levels of risk over the long term. The 'core business' has been redefined both with regard to the range of products on offer and in terms of the countries in which the institute will be active in future.

'With these fundamental strategic decisions, the bank is drawing its conclusions from the financial market and real estate crisis which has considerably impacted its profitability,' Eurohypo said. The market turmoil has also revealed structural problems which are a result of structuring that was too complex and too strong a focus on growth in previous years, which in individual cases led to the corresponding risks being taken on, it added.

The lender also sees an adjustment to the size of the CRE portfolio as 'absolutely essential' as part of the requisite reduction of the Commerzbank Group's total assets which have extended to include Dresdner Bank.

'With the realignment of real estate financing we are showing that, in a situation which is difficult for all market participants, we have the courage to follow new paths and to make the necessary fundamental decisions', said Frank Pörschke, chairman of the Board of Managing Directors.

In order to set up the CRE business area in a way that will ensure long-term profitability, Eurohypo will concentrate on the markets and financing solutions where it can generate returns over the long-term and with an adequate level of risk. It will remain an internationally-active real estate bank, which concentrates on 10 target markets, namely Germany, France, Italy, Poland, Portugal, Spain, UK, the US, Russia and Turkey. The Bank will of course still fulfil all applicable obligations in the countries from which it will withdraw (around 20 international locations).

Eurohypo will also re-organise its CRE services. The services on offer include financing business for real estate investors and developers, as well as derivatives connected with this within the office, residential (only in Germany), retail, logistics and hotel asset classes. The bank will, however, no longer support German residential developers. This will have no influence on commercial construction finance, which will be continued. Furthermore, Eurohypo will no longer provide corporate loans or advisory. The last mentioned three areas have proved not to be sufficiently profitable.

Eurohypo will decrease the size of its real estate financing portfolio as a contribution to the reduction of the Commerzbank Group’s total assets. The CRE portfolio is due to be reduced to EUR 60 bn from the current EUR 79 bn by the end of 2012.

The size of the organisation as a whole will be reduced as part of the CRE realignment, resulting in a 34% decrease in positions by the end of 2011. This corresponds to the loss of around 390 full-time positions, of which approximately 260 will be in Germany.