Real estate lending veteran Jan Peter Annecke, former head of commercial real estate finance at Münchener Hypothekenbank, was curious to see what he could achieve in a bigger bank when the opportunity to work for Helaba arose in early January, following the retirement of Michael Berger.
“I loved my job at Münchener Hyp, but after 13 years at the bank I thought it was time to do something different,” he recalls. In his new role, Annecke will manage the bank’s German real estate loan portfolio in a challenging market scenario, but the banker is confident about Helaba’s ability to secure the right deals. Real Estate Capital caught up with him to discuss his plans.
Real Estate Capital: What are your goals for Helaba’s German real estate lending business?
Jan Peter Annecke: In terms of new lending volumes and margins, my goals for 2019 are to maintain the levels the bank achieved last year [Helaba’s full-year 2018 volumes have not been reported, although the bank had a €10 billion new lending target]. By mid-2018, we were behind target, but we met it by the end of last year. Our team delivered a very successful 2018, so I am not expecting to make significant changes to our processes. That being said, markets are moving and it is not getting easier to find strategy-compliant deals, so we will check our processes to become faster or to seek new products or new markets as we observe the market. That’s what we do constantly.
REC: How did the German real estate market perform in 2018?
JPA: It was a phenomenal year, with strong investment activity driving lending deals. The first half of 2018 was weak for most of the German banks, but they caught up in the second half of the year, as the fourth quarter was especially robust. International investors have strong appetite for German properties, as foreign capital made up 50 percent of market activity. We try to provide debt liquidity to these investors, but it is also important to have a strategy for German investors – they make up the other half of the German real estate investment market.
REC: Will Helaba be forced to move up the risk curve significantly in order to secure deals?
JPA: We like doing plain-vanilla deals, but we also like developments or structuring complex deals, involving, for instance, a portfolio of different properties in one transaction. Obviously, the latter are better priced transactions and we have margin requirements that we need to meet, so these deals will be part of our new business for 2019. This, however, doesn’t mean that our strategic drive will be focused just on underwriting complex deals. We will do both – plain vanilla and complex financings.
I feel comfortable with our risk strategy and we will continue to do in 2019 what we did last year. There is enough strategy-compliant business in Germany. If we see that securing new business becomes increasingly more difficult, we will seek new products or new niches rather than increasing our risk appetite remarkedly to meet our deal volumes. Property banks can also be very competitive by digitalising their processes, to become faster than competitors. That’s what we are doing now, boosting our digitalisation to have a competitive advantage.
REC: How do you expect the German property finance market to perform in 2019?
JPA: Fierce competition between investors and lenders will continue in 2019. I think the market will gradually see higher loan-to-value ratios, covenants will become less restrictive, some deals won’t have covenants at all. We’ll probably see more speculative developments in the market, and more transactions involving value-add properties. We might see lenders doing one-off deals, where banks do not have relationships with borrowers. Helaba, for its part, might do some complex transactions with more aggressive conditions but only with institutional customers with a proven track record, and with whom we have an established relationship. If Helaba does a one-off deal with a new borrower, it will be conservative.
REC: What is going to happen with margins?
JPA: The pressure on margins will continue in Germany because of fierce competition, particularly for plain-vanilla deals against high quality core assets. If you have more than 10 lenders bidding for one transaction, margins will obviously go down. Nonetheless, I hope the decrease in margins will slow down as interest rates start rising. Over the last two years, we have had competition from insurers and pension funds, as real estate lending has provided more attractive margins than the bond markets. When interest rates go up, some of these lenders might go back to their original bond markets, which are more liquid and not so management intensive as commercial real estate lending.
REC: What are the headwinds for the German market?
JPA: Besides high competition among lenders, the biggest concern I have is that the German economy will cool down. This means unemployment would rise, demand for commercial real estate would weaken, growth for rents would slow down. All this would certainly have an impact on property prices.