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.

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.

‘Interest swap rates were becoming lower and lower, and this was a problem because we had to distribute a fixed rate to our investors. Typically, this is roughly 3.75% while 10-year German government bonds generate around 1% returns. So we had to find new opportunities to get higher returns and real estate debt was an example of how we could diversify our portfolio.’

The pension fund has focused so far on the financing of major office towers in Germany’s largest markets. It has funded Silver tower, the former headquarters of Dresdner Bank in Frankfurt, and in 2013 it acted as sole financier for Tower 185 in Frankfurt providing €300 mln to the Austrian group CA Immo.

Last month the company underwrote its largest property lending deal ever with the grant of a €450 mln senior loan for the Mall of Berlin on Leipziger Platz.

‘According to our internal guidelines we can underwrite a maximum of €500 mln per single transaction and we aim to invest at least €500 mln a year in new loans,’ Echter said, adding that the focus on large lot sizes allows BVK to avoid competition. ‘

We focus on loans backed by office, high-street retail or shopping malls with a loan-to-value of up to 70%. We do not focus on logistics, hotels or any other segments, but we are open-minded regarding residential portfolios. In terms of size we don’t go below €50 mln, where the market is very competitive. We tend to consider loans of €200-300 mln that only a handful of banks are prepared to offer.’

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