Push from investors gets German debt funds rolling

Deka and BNP Paribas are among those winning institutional backing, reports Lauren Parr

German funds contributed to Mall of Berlin's €600m financing
German funds contributed to Mall of Berlin’s financing

German real estate debt funds, while relatively new on the scene, are starting to build loan books and market relationships.

Germany’s first debt fund under German investment law, Deka Realkredit Klassik, launched in 2009, has amassed a €470m portfolio of 24 top-quality loans by buying the senior slice of some loans originated by Deka Bank. A stipulation of the agreement is that Deka Bank must hold at least 50% of Deka Realkredit Klassik’s share in any loan.

The risk averse, open-ended fund’s main shareholders are savings banks, which can “still secure a higher margin and lower risk than they would in their usual surroundings”, says Dr. Frank Ebner, head of alternative investments and responsible for manager Deka Immobilien Investment’s debt funds.

Deka Realkredit Klassik invests in all the real estate markets Deka Bank does, including the UK, France, Germany and North America. In October it acquired a £26m slice of a £155m loan its parent company provided for Tishman Speyer’s purchase of 33 Holborn, London EC1.

The fund has just made its first Italian investment through the purchase of part of a loan Deka Bank, as sole lender, made against a Milan retail building in April.

The two debt funds run by BNP Paribas REIM Germany, one for a single institutional investor, the other a pooled fund, were gained when it acquired iii-investments in 2013 and have made their own mark. They shared in one of Germany’s biggest 2014 financings: the €600m debt package arranged for the newly built Mall of Berlin.

 Mall of Berlin deal was big step

The deal comprised €450m of senior debt from pension fund Bayerische Versorgungskammer, at a sub-100bps margin; €80m from Deutsche Hypothekenbank; and €70m of junior finance from BNP’s two, Munich-based debt funds. “This large-volume financing is another important step toward establishing debt funds in Germany,” says Reinhard Mattern, chairman of BNP Paribas REIM Germany’s management board.

Last year the company acquired €94m of retail, office, logistics and residential loans, including a €24m junior tranche of a €74m loan Düsseldorfer Hypothekenbank granted to Delin Capital, secured against a portfolio of five Netherlands logistics properties.

It sources deals via about 25 German and international banks, as well as 10 financing consultants and various institutional investors, and manages around €4.3bn of mortgage-secured senior loans and subordinated, secured junior loans. Mattern says: “The role of non-banks in real estate financing is growing at an accelerating pace.”

The latest to launch a debt fund targeting Germany’s already well-supplied, low-margin market, is Deutsche Asset & Wealth Management, which raised €500m from investors for a senior debt strategy, structured as a spezialfond.

Andrea Vanni, head of European real estate debt investments for Deutsche AWM, said in January: “The capital raising demonstrates the increasing demand for real estate loans as an alternative to corporate and government bonds.”

Deka’s Ebner says while funds providing both senior and junior loans are leading growth in the German real estate debt funds sector, the door is open for new kinds of funds, such as infrastructure debt and transportation. To that end, Deka recently launched a fund with a big German pension fund investing in aviation and shipping loans.

“With low interest rates on all type of investments, banks, insurance companies and pension funds find it hard to invest. Out of real estate there is an opportunity to engage in new asset classes,” he say.