Moritz Sirowatka
Frankfurt by night
Of course, the biggest cities, such as Munich, Berlin, Hamburg and Frankfurt represent the safest investment from an investor’s point of view, where although the prices have risen in the last few years faster than the rents, yields have also fallen correspondingly.
If there is one subject that the German real estate press has been busying itself with throughout the summer, it is the big question of whether there really is a credit crunch for German real estate, and if so, how serious is it? There are no shortage of divergent views on the subject – some investors say they’ve had no problems, while others have hair-raising tales of their latest negotiations with financing banks.
A recent survey published by the ZIA, Germany’s main lobbying group for commercial property, sifts through the detailed responses from 56 leading real estate investors in Germany. Their overwhelming conclusion is that financing conditions for real estate companies is set to deteriorate markedly in the coming months, although for the moment project financing under the €100m level is still available. Several express surprise at the banks’ apparent willingness to finance property despite the obvious storm clouds overhead.
So it is perhaps timely that a new quarterly index has just been launched that attempts to measure how much financing is being made available for German real estate investment. The FAP Barometer is the brainchild of the Berlin-based Flatow Advisory Partners, with market research being carried out by specialist research group BulwienGesa, who have plenty of experience gathering and interpreting data from across the German real estate spectrum.
Initial results from the first survey are in, and were presented at a special launch in Frankfurt last week, attended by REFIRE. The purpose of the new indicator is to observe and highlight the “systemic change” taking place on the financing landscape at close quarters.
Only lenders are surveyed for the new index, not borrowers – lenders include new financiers, such as insurance companies, loan funds and superannuation schemes, who are looking for commitments on the German real estate finance market, alongside the established players such as the banks.
To judge from the FAP Barometer’s first reading, for Q3 of this year, respondents characterised the current market as showing “a ready willingness to lend”. On the Barometer’s scale of -15 (credit crunch) across to +15 (liquid market), the FAP Barometer currently reads +5.8 (ready willingness to finance).
Of respondents, more than half (54.4%) said demaind for loans was rising in Q3, 41.3% saw no perceptible change, and 4.4% said they saw demand falling. On new business, 53.5% said they were signing net new business, 32.6% see new business remaining stable, while 14% are writing less new business than in the previous quarter.
64.3% of new business is in the €10m to €50m bracket, with 19% between €50m and €100m. Deals of less than €10m represent €16.7% of new signings, mainly being issued by the savings and co-operative banks.
What is clear from the FAP Barometer is how much more expensive borrowing for commercial real estate has become since the onset of the financial crisis. Whereas a margin of 80 basis points was considered average for existing properties before the crisis, 35% of lenders are demanding 100 to 140 basis points, while 30% are charging 141 to 180 basis points – effectively a doubling of their margins. For the riskier project developments a third of respondents are charging between 181 and 220 basis points, while another third are charging up to 260 basis points.
Curth Flatow, the initiator of the new index, commented: “Commercial real estate financing has become more demanding, but there is no sign of a credit crunch, as some market voices in the German real estate industry would have you believe. There is clearly a basic willingness to lend, and sentiment in the financiers’ camp is upbeat. With the high volume of demand as well as their own capacities in mind, active lenders are able or forced to select their commitments with care.”
Here at REFIRE we will be adding the FAP Barometer to the indices we track and report on regularly in future issues, and will keep our readers informed of future movements. Today’s reading = +5.8
