Berlin Hyp shows appetite for development with €220m loan

The German bank finances a fully let office project in its home market as it increases new lending to the higher-margin development space.

Germany’s Berlin Hyp has backed a fully let office construction project with a €220 million loan provided to local developer Signa, in a move that highlights the bank’s appetite for construction finance amid increased development activity in the German market.

The financing will fund the development of a 90-metre office building with a gross floor area of around 50,000 square metres, including catering and retail areas on the ground floor. The project, dubbed ‘Stream’, will be in Berlin’s new Mediaspree urban quarter. The office building, expected to be completed by the end of 2021, is already fully let.

Assem El Alami, head of real estate finance, declined to disclose the deal’s lending terms to Real Estate Capital, but said the financing is “as conservative as people are used to the bank being conservative”.

“We find this project very attractive since it has a relatively conservative risk profile, which is in line with how we see development financing,” El Alami added.

Berlin Hyp’s financing to developers and building contractors accounted for 29 percent of the €3.5 billion of the bank’s new lending in H1 2018. This compares with €3.1 billion of fresh lending in H1 2017, of which 18 percent was attributable to developers.

“We have seen increased development activity in Germany this year in comparison with previous years, but we have not made a strategic decision to significantly increase our commitment into the development segment,” El Alami said.

While new lending at other major German banks such as pbb Deutsche Pfandbriefbank or Helaba been down in the first half of the year, Berlin Hyp posted an increase of €400 million. Competition among creditors remained “fierce”, as did the high volume of liquidity, which put pressure on margins, the bank said in its H1 2018 financial results.

Berlin Hyp’s new business margins in H1 2018, however, were maintained at the previous year’s level, while its risk behaviour remained largely unchanged, the German bank said. “A further increase in the proportion of higher-margin developer and property developer financing also contributed to this,” it said in the results report.

The average senior margin for office developments ranged from 1.75 percent to 2.25 percent by the end of Q2 2018, which compares with typical margins for office investment at 1 percent, according to CBRE’s Debt Map data.

Amid a lack of core products in the German market, development projects mean potential new deals for local finance providers, according to an H1 2018 report on real estate financing from consultancy firm JLL.

“Of the office project developments under construction in the big [seven German] cities which are likely to be completed by the end of 2019, two-thirds of all space is already pre-let or is under construction for owner-occupiers,” the report says.

“It is exactly these properties which would be suitable for loan portfolios of the more risk-averse banks, and there is huge competition between finance providers to secure these products,” it added.