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Germany’s competitive market kept banks keen

Domestic banks showed no let-up in appetite for German real estate lending during 2019, despite high values and low margins.

The most recent German Debt Project report, published by Bavaria’s University of Regensburg in 2019, provides an insight into the ongoing challenges faced by the country’s lenders. It showed that competition between banks remains intense, with interest rates and margins at very low levels. Two-thirds of institutions told the survey that margins had stopped falling, but that there was a move towards more complex financings, including value-add and development, with more syndication activity to spread risk.

“Equity-strong investors are requiring less debt,” added the report’s authors, who went on to say that listed property companies and real estate operating companies are “increasingly using capital market instruments for their financing needs”.

The investment market remained robust, with data provider Real Capital Analytics recording €76 billion of volume, making it Europe’s best performing market last year. Property values are high, which remains a concern for many, given fears of a looming recession. However, Real Capital Analytics’ senior director of EMEA analytics, Tom Leahy, said: “On the occupier side, the services sector of the economy is doing well, supporting the take-up of office space, and the investment market for apartments held up very well, despite a deteriorating macroeconomic outlook in Germany.”

Although domestic banks were locked in intense competition for lending mandates, they also sought to develop their property lending businesses through innovation and by improving their sustainability standards. For instance, the winner of our Bank Lender of the Year: Germany award, mortgage bank Berlin Hyp, issued its eighth green bond in October to fund its lending activities, making it the most active issuer of green bonds among Europe’s commercial banks. Its lending deals included arranging and taking a €384 million participation in the financing of landlord Berlinovo’s 133 residential properties, known as the Kontor portfolio.

The Squaire
The Squaire: BAML provided fresh finance for the building at Frankfurt Airport

While domestic banks dominated the market, US lender Bank of America Merrill Lynch was the debt provider in the transaction that won our Financing Deal of the Year: Germany award. This was for one of the country’s most recognisable commercial properties, The Squaire at Frankfurt Airport. In December 2018, after the cut-off for our 2018 awards, the US bank provided sponsor Blackstone – which has since sold the asset – with a 66.9 percent loan-to-value senior facility, totalling €500 million, for the office and hotel property. BAML, the incumbent lender to the scheme, arranged a securitisation – Taurus DEU 2018-3 DAC – which refinanced a previous CMBS deal secured by the scheme.

Germany’s real estate sector remains so heavily banked that alternative lenders can struggle to compete for deals. One non-bank lender that did gain market share in 2019 was Allianz Real Estate, the property management arm of German insurer Allianz and winner of our Alternative Lender of the Year: Germany award. Among its deals, it financed retail assets, including a €230 million facility to investment manager Nuveen Real Estate and retail owner Unibail-Rodamco-Westfield for the Gropius Passagen shopping centre in Berlin.

Eastdil Secured scooped our Debt Advisor of the Year: Germany award. The real estate investment banking firm was employed on deals including a €76 million acquisition financing for a core-plus office building in Munich and the refinancing and development financing of a €2.1 billion pan-European logistics portfolio, of which 37 percent of the assets were in Germany.