Alternative lenders are being squeezed out of the German real estate financing market, according to Dirk Richolt, head of real estate finance at CBRE in Frankfurt.
Alternative lenders are being squeezed out of the German real estate financing market, according to Dirk Richolt, head of real estate finance at CBRE in Frankfurt.
Although non-traditional lenders such as insurers and debt funds 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 lenders, Richolt told PropertyEU in an interview.
'One change we've seen this year is that due to very low swap rates and interest rates, alternative lenders can no longer keep up. In the past, the advantage for alternative lenders was that banks had higher funding costs than they did. This is no longer the case. Also, the returns are too low for many alternative lenders - a floating-rate loan (over Euribor) generates less than 2%. That makes no sense for alterative lenders,’ he warned.
Jörg Schürmann, head of corporate finance at JLL in Frankfurt, agrees conditions are becoming tougher for alternative lenders. ‘Non-traditional lenders expect a certain yield to make lending worthwhile, typically in the region of 3% to 3.5% That’s hard – even a 2% yield is a stretch today,’ he added.
Increased competition has also put pressure on margins, noted Michael Kröger, head of international real estate finance at Helaba. ‘Going forward, loan margins will continue to be under pressure,’ he said.
Subsequently, it will hard for alternative lenders to increase their market share, said Schürmann. ‘I don’t think they will ever account for as much as 30% of the overall lending volume in Germany.’
Initially, in addition to cheaper financing, the advantage of alternative lenders was that they would write bigger loans than traditional lenders and offer much longer loan terms of up to 25 years. However, banks are now becoming more flexible, too, and are offering longer loan terms, thereby eroding the former competitive advantage of non-traditional lenders.
However, co-operation between traditional lenders and their alternative counterparts shouldn’t be written off yet, according to Bernhard Scholz, member of the board at pbb: ‘Most of the new lenders tend to finance ‘big ticket’ prime deals, primarily in core locations. They are competitors to a limited extend. Nevertheless we also view them as potential partners and have already financed some deals together with both insurers and debt funds,’ he said.
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