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Helaba jumped from 17th to 3rd in the rankings in this year’s survey while Aareal was placed fourth, up from ninth in 2014.
“As a senior lender to the commercial real estate sector, you have two options,” says Dagmar Knopek, member of the management board responsible for the sales unit in the structured property financing division at Aareal Bank’s Wiesbaden headquarters. “You can either compete with the insurance companies and specialist debt funds that are increasingly coming into the market on the lending side. Or you can work in partnership with them. We prefer to do the latter.”
As an example, she points to the financing of the recent acquisition by NorthStar Realty of a 186,000 square metre portfolio of offices spread across major cities in seven European countries valued at €1.1 billion. The senior financing tranche of €630 million was provided by Aareal and Allianz Real Estate, making the transaction one of the largest syndicated loans ever co-provided by banks and institutional investors in the European commercial real estate sector.
Allianz Real Estate, which describes commercial real estate lending as “the perfect addition” to its direct and indirect property investments, has been lending to the real estate sector in the US for over 30 years. It extended its loan business to Europe in 2011, starting in Germany and France, adding Spain and the Netherlands to its CRE lending franchise at the since the start of this year. By the end of the first quarter of this year, Allianz had lent some €2.5 billion to the European CRE sector, with an average LTV of 56%, of which 52% was in Germany, 37% in France, 6% in the Netherlands and 5% in Spain.
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Dagmar Knopek, |
For Aareal, meanwhile, transactions such as the NordStar syndication underscore its continued commitment to the European CRE sector which has been a feature of the bank’s renaissance over the last decade. It has been quite a transformation. As Wolf Schumacher, chairman of Aareal’s management board, said when announcing the bank’s record operating profit of €436 million in 2014, 10 years before Aareal was at a “an all-time low”. “Its team was unsettled, its financial situation weak, and its business was deeply in the red,” he said.
Today, Aareal is what Fitch regards as “the strongest among rated German specialist lenders”, a position the bank has achieved by sticking to its knitting in the real estate sector. “It’s certainly true that Aareal looked very different 10 years ago,” says Knopek. “Since then, we have focused on extending our international business in real estate structured finance in the core retail, office, hotel and logistics sectors. We have also diversified the portfolio by looking mainly at investment loans rather than project development, and by focusing on building a portfolio spread across North America, Europe and Asia.”
Key market
That Germany remains a key market for Aareal is reflected in its recent acquisition from Lone Star of Corealcredit Bank (the former Allgemeine Hypothekenbank Rheinboden), which has been focusing on its German CRE portfolio. More recently, Aareal completed the acquisition of the CRE subsidiary of the former WestLB, WestImmo, which has a well-diversified commercial real estate lending franchise. A third of WestImmo’s €4.3 billion portfolio in Germany, 58% elsewhere in Europe and 9% in North America, which dovetails neatly with the global diversification of Aareal’s CRE book. At the end of March 2015, 19% of this €29.3 billion portfolio was in Germany, with 31% in Western Europe, 30% elsewhere in Europe, 18% in North America and 2% in Asia.
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Michael Kröger, |
It is just as well that Aareal’s exposure is so well spread, because the German commercial real estate sector is now a highly competitive environment in which margins have been driven down much further than elsewhere in Europe. According to Cushman & Wakefield, margins fell to 0.6% in Germany in 2014, compared with “not far off” 1% in France and the UK.
In spite of the intense competition, lenders say there is plenty of business to go round. So much, in fact, that Germany’s most enthusiastic senior lenders to the commercial property sector are writing considerably more business than they anticipated. Hessische Landesbank (Helaba) has seen its medium and long-term CRE lending climb continuously since 2010, reaching €6.7 billion in 2011, €7.2 billion in 2012, €8.7 billion in 2013 and €9.6 billion in 2014. In the first half of 2015, according to its head of international real estate finance, Michael Kröger, Helaba’s CRE lending was €5.5 billion. This, he says, suggests that in 2015 Helaba is on track to meet its original target for the year of around €8 billion.
“On the debt side there are competitive pressures building in the German market,” says Kröger. “Liquidity is entering the market from a number of sources, which is driving up volumes as well as the sizes of individual deals.” It is also pushing up the size of loan tickets banks are prepared to write. Two years ago, says Kröger, banks’ upper underwriting limit for was typically €100 million; today, it is closer to €300 million.
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Further reading |
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Real Estate Awards 2015: |
There is little, says Kröger, to suggest that continued expansion will be unsustainable. “LTVs are moving up, from 55% or 60% two years ago to 65% or 70% today, but we are still nowhere near the levels we saw in 2005 or 2006.”
“Sometimes philosophically, and sometimes provocatively, everybody is asking if conditions in the real estate lending market are now the same as we saw at the peak of the last cycle in 2006 and 2007,” Kröger adds. “There are some fundamental differences between now and then. One is that there is now a substantial amount of equity money on the table. Between 2005 and 2007 it was all about debt – tranched, sliced, resecuritised, repackaged, syndicated and refinanced. It was a complex web that very few people seemed to understand.”
“Today, it’s much simpler,” he says. “It’s now more about bricks, mortar and fundamental analysis of tenancy quality and cash flow outlook. There’s a solid element to the CRE lending market today which explains why there has not yet been a strong comeback of the securitisation market.”
Like Aareal, Helaba is committed to the further geographical diversification of its CRE lending exposure. At the end of 2014, just under half (€16.6 billion) of its €35.2 billion CRE portfolio was in Germany, with €7 billion in North America and the bulk of the balance in Europe ex-Germany. Kröger says that as well as continuing to focus on growth in the US (principally in New York and San Francisco) and the UK (both in London and elsewhere), Helaba sees good potential in the Nordic region, and is planning to open an office in Stockholm this year.
