Lending margins in the German commercial real estate market are as low as 80 basis points over three-month Euribor and have reached the “bottom of the barrel”, delegates at Real Estate Capital’s Germany Forum 2016 heard this morning.
The current interest rate and margin environment is being driven by the “artificial environment” of negative European Central Bank interest rates, conference chair Alexander Fischbaum of AF Advisory told delegates in Frankfurt.
“This monetary policy is creating bubbles,” Fischbaum said.
Speaking on the panel discussing future growth prospects in the German market, Michael Ramm, managing director and co-head of acquisitions at JP Morgan Asset Management said that finance is readily available to investors in Germany, for core deals.
“There is debt liquidity for core product and it is possible to see 80 bps for very solid assets with good cash flow. But banks are cautious and there is not a great deal of debt capital seeking risk,” said Ramm.
On the increasingly two-tier investment market in Germany, Gunther Deutsch, MD and head of investment transactions Europe at Cornerstone Real Estate Advisors said: “Foreign money is willing to take risks that local investors will not take. Foreign capital is taking the risk, and German investors are taking a more passive approach by investing in those funds.”
Speaking on the panel discussing the role of non-banks on real estate finance, Jan Polland of Meunchener Hypothekenbank said: “Most banks had strong sales figures last year, but almost all was in senior lending.” Margins are at the “bottom of the barrel” and LTVs remain conservative, he added.
Although there was agreement that banks remain risk-averse, panellists discussed the availabilty of higher leverage finance.
“There is huge demand for senior debt, although demand goes substantially unsatisfied above the 65 percent LTV level. Investors [into debt funds] are interested in taking a little more risk for some more return,” said Anthony Shayle of UBS Asset Management.
“It is possible to find 70-75 percent LTV in Germany for every asset class,” argued Elke Birk of debt fund manager DRC Capital.
Political risk across Europe was a recurring theme during the discussions. During her keynote address, Gertrud Traud, chief economist at Helaba said that the biggest risk to Europe was political, not economic.
As well as the Syrian migrant crisis, Traud pointed to the looming referendum on the UK’s continued membership of the European Union.
“A Brexit would mean the end of the Eurozone and Europe as a whole,” said Traud. “We need the UK. We need to have a country which tells us when something is going wrong.”
Traud added that negative ECB interest rates will not solve Europe’s problems, but will merely harm its banks.