Aareal stake in Mount Street underpins digitalisation drive

The Wiesbaden-based property financier Aareal Bank has taken a 20% stake in independent London-based loan servicer Mount Street to support Aareal's commercial credit and syndication processes.

Mount Street has offices in London, Frankfurt, Amsterdam and Athens to look after its European business, which covers €26bn of commercial real estate debt, both CMBS and balance sheet positions, for about 175 investors, sponsors and lenders throughout Europe. Its original backer Greenfield partners is now exiting, and its stake is being bought by Mount Street founders Ravi Joseph and Paul Lloyd, along with Aareal Bank.

Aareal Bank's CEO Hermann Merkens said, "With this investment in Mount Street we are steadily implementing our 'Aareal 2020' programme for the future, while we're continuing to expand our business along the commercial property finance value chain. At the same time, we're securing our access to innovative technologies and a rapidly growing market."

This last is a reference to Aareal's intention to examine adopting for itself internally Mount Street's proprietary credit management software platform CLC (Clareti Loan Control) developed by Mount Street in GMS Loan Technologies Ltd, a joint venture with Gresham Technologies plc.

(Herr Merkens has laid noticeable emphasis on Aareal's focus on digitalisation with the bank's own 'Aareal 2020' programme at all the most recent Aareal press briefings attended by REFIRE – accessing this kind of know-how seems to be very core to the bank's plans).

Mount Street and Aareal Bank said that they expected the demand for services in the areas of credit management and servicing in Europe to increase considerably in the coming years. Within the partnership's framework, Mount Street said it planned to further expand its business relationships in the banking and insurance sectors.

Mount Street recently announced its acquisition of the German EAA Portfolio Advisors (EPA) – charged with winding up the loan portfolios of insolvent bank WestLB's EAA 'bad bank'. Once regulatory approvals are settled, this will add a further €29bn to its assets under management, it said.

Meanwhile, Aareal Bank posted full year 2016 figures last week which CEO Merkens described as "Delivering on what we promised… the bank's best operating profit to date, despite the still-challenging environment".

Operating profits were up €366m from €320m last year, albeit with the benefit of many 'one-off' effects, such as the absorption of Mainz-based property bank WestImmo. Smoothed for these, net profits were actually down 39%. Merkens forecast weaker profits ahead for this year given the low interest rate environment, but said the bank was increasing its dividend nonetheless (from €1.65 to €2.00) – offering a generous dividend yield of 5.98%.

Last year the bank wrote new real estate business of €9.2bn, slightly down on the €9.6bn of 2015 but nonetheless well ahead of the €7bn-€8bn originally targeted. In line with its German peers the bank is making conservative statements of new business goals for this year, sticking with the €7bn-€8bn goal set last year for this year's "highly competitive environment".