Helaba holding back on new lending as margins come under pressure

Of the big real estate financing institutions in Germany, perhaps the bank expressing the most caution about the current lending environment is the traditionally conservative Helaba, which naturally wants to avoid being squeezed by increasing competition from banks and new sources of alternative finance pressing on to the market.

At a recent press briefing in the bank’s Frankfurt headquarters, attended by REFIRE, the bank’s board member with responsibility for real estate, Jürgen Fenk, found himself stoutly defending his bank’s intention to slightly row back on new business for 2014, rather than issuing grandiose new targets to match the mood of market enthusiasm. This year he projects €8bn of new lending, down on last year’s €8.7bn (itself higher than originally planned), but with the same level of returns.

Although Helaba posted good figures for the full-year 2013, the first quarter had been strong, and prospects for the economy and for real estate are all positive, Fenk said that competition between the banks and new alternative finance providers meant that margins were coming under increased pressure. Additionally, he pointed to the number of large deals done recently for core property assets where the buyers are equity-rich – such as sovereign funds and big insurance companies flush with cash – so banks’ lending books are not necessarily growing while such buyers predominate.

He also questioned how sustainable the commitment of new alternative lenders would be to the financing markets once interest rates rise again, although that could be some time away, he conceded.

Helaba’s lending book is now up a further €1bn over the last year at €33.5bn, of which Germany makes up €16.7bn, followed by North America with €6.5bn. Property lending made up half (€261m) of last year’s overall parent company bank profits of €510m.

The bank’s core lending markets remain Germany (60% last year), France, UK, Poland, Sweden, Finland and the Czech Republic – and is not actively pursuing any new business in southern Europe including Spain, unless an exceptional opportunity arose with an existing client. Within Germany the bank is actively financing top-quality assets in secondary cities, where it knows the market and the participants. About 44% of its loans are for office properties, 24% for retail, 16% for the residential sector, and 16% to others such as logistics.

Head of German real estate finance Michael Berger also pointed to the new role in financing now being played by debt funds, pension funds and insurers. He sees increasing interest in A-locations in B-cities such as Wiesbaden or Nüremberg, and further collaboration between the banks and the new finance providers.