Investors are shifting their focus to secondary properties in Europe in a bid to boost their returns as competition intensifies in core markets.
Investors are shifting their focus to secondary properties in Europe in a bid to boost their returns as competition intensifies in core markets.
Property financiers such as Germany’s BayernLB are well-placed to observe this trend. According to Eberhard Maier, head of international real estate financing at BayernLB in Munich, there has been a real shift this year towards secondary real estate assets and locations: ‘Our clients are starting to look more at ‘B’ cities because competition has become so stiff for prime assets that you typically have 20 to 30 investors looking at a prime property in markets such as Hamburg and Munich. I think we’ll see increased interest in markets outside the ‘Big Six’ next year as well as increased interest on the part of international investors in Germany,’ he said.
BayernLB was close to hitting its target of €3 bn in new business by the end of 2013. ‘Our target for 2014 is the same,’ Maier added. Germany remains BayernLB’s main lending market, accounting for around 85% of business, but it is also active in markets such as France, the UK, Poland, the Czech Republic and the US with its German customers. ‘We finance a lot of deals for international buyers in Germany,’ Maier said.
In addition, club deals are still very important for the ‘big ticket’ transactions, according to Maier. In August, BayernLB co-funded the purchase of a portfolio of German offices by Munich-based investment manager GLL Real Estate Partners in Europe. BayernLB and Deutsche Hypo each provided half of the €400 mln loan. Further details have not been released.
In December, BayernLB financed Luxembourg-based private equity group Jargonnat Partners’ acquisition of the mixed-use Trikolon scheme in Munich near Arabellapark for an undisclosed sum. The 10-storey building totals around 50,000 m2 of office, residential and retail space. Also, in October, the bank provided €76 mln in financing to Hamburg-based Wegner group for a logistics centre in Worms. The 52,000 m2 facility is fully let to Robert Bosch.
However, unlike many other traditional lenders, BayernLB is not beating down the door to underwrite loans with alternative lenders such as pension funds or debt funds: ‘We haven’t entered into any club deals yet with debt funds or insurance companies. They still make up a very small part of the market and, for us, our main competitors are other banks rather than alternative lenders,’ Maier stressed.
There are challenges ahead in 2014, according to Maier, not least the regulatory issues facing the industry. ‘We will continue to lend in our core markets next year. However, we will only lend to investors abroad with a presence in Germany,’ he said.