The number of distressed real estate debt deals is expected to increase slightly in Germany this year, according to a survey conducted jointly by Swiss investment firm Corestate Capital and Germany’s EBS Business School.
The number of distressed real estate debt deals is expected to increase slightly in Germany this year, according to a survey conducted jointly by Swiss investment firm Corestate Capital and Germany’s EBS Business School.
The survey, carried out for the third time, focuses on assessing the sentiment for financing commercial real estate from the banks’ perspective. ‘We are particularly pleased to see that now, in our third research year, we are in a position to show the extent to which the market for commercial real estate financing continues to shift and has still not settled down,’ said Thomas Landschreiber, CIO of Corestate Capital.
‘In 2012, the decision-makers we polled were expecting a major clean-up and sell-off of non-performing loans. Last year, the experts no longer diagnosed a dire need to sell, true to the maxim “extend and pretend.” Now the wind has shifted again, and we are expecting to see the number of distressed transactions to slightly go up again,’ Landschreiber said.
The survey also found that the prevailing need for yield has caused gearing ratios (LTVs) to rise at a time when principal repayments are increasingly being enforced and the lifetimes of loans are getting shorter.
However, Landschreiber noted that these transactions probably did not involve new distressed loans, but ones that were postponed in the past.
The survey also looked at banks’ appetite for issuing new loans. ‘We have noted how fast the market for real estate loans is changing at the moment. Despite the margin pressure, the uncertainties in regard to the level of interest rates, Germany's economic situation as well as the ongoing crises in the Middle East and Ukraine, banks are raising their LTV thresholds, and are expecting to see a constant or indeed increased volume of new business,’ said professor Nico Rottke, founder and head of EBS’ Real Estate Management Institute (REMI).
Survey respondents included 31 senior executives from the banking sector, including CEOs, board members and managing directors of 30 private commercial banks, state banks, and mortgage credit banks. Together, their institutions account for roughly 97% of all assets held by German commercial real estate financiers.