Market still divided into prime 'and the rest’

The current situation whereby the real estate market is divided into 'prime and then everything else' is not going to change just yet, according to Michael Kröger, general manager of real estate finance at German bank Helaba.

That's not to say the market is entirely gloomy, Kröger said. Helaba hopes to have generated around EUR 5 bn in new business by the end of this year in markets such as Germany, the US, France and Scandinavia. Typical loan terms are five-to-seven years, although Helaba will also offer 10-year loan terms.

Low interest rates are also giving the market a boost, he said. ‘As long as they stay this low, I don’t think we’ll see the distressed sales that some people predicted. Neither is the threat of a double-dip recession in the UK and the US likely to deter many investors,’ he added. ‘Economics aren’t the only factor driving the market - after all, prime offices in Madrid trade at decent cap rates. Sometimes sentiment and expectation drive the market just as much.

Other lenders agree that a recovery is still under way. ‘Improvements are still going on,’ said Andreas Pohl, a board member of Deutsche Hypo, part of the NordLB group. ‘Conditions for financing have to be right. Today, we’ll offer leverage of between 70% and 80%, up from 60% to 70% in 2008,’ he said. For Pohl, it is also about having the right clients. ‘We’re client-driven but certain criteria also have to be met: for example, we expect properties to be pre-let and we look at the cash-flow as well.’ Pohl expects to generate around EUR 2 bn in new business this year, slightly lower than an earlier target of EUR 2.5 bn. Together, Deutsche Hypo and NordLB have around EUR 21 bn of loans on their books, of which around 65% was originated in Germany.