German financing barometer shows uptick in sentiment

While the talking heads were grappling over the thorny issue of who is financing what in German real estate these days in Ashurst’s law offices last week, the nascent FAP Barometer of property financing conditions in Germany turned marginally positive after a slightly negative reading in the first quarter - meaning that sentiment has improved as financing terms are seen as slightly less restrictive, despite the generally subdued background.

On the FAP scale of -15 (credit crunch) to +15 (liquid market), the barometer for Q2 2013 reads +0.74, as compared to last quarter’s reading of -0.25. All things considered, said Curth-C. Flatow, the founder and managing partner at Berlin-based FAP, the terms of financing got clearly better ratings during the second quarter. More respondents viewed the parameters as ‘progressive’ rather that ‘restrictive’, although the majority (66.7%) viewed parameters as remaining stable.

Significantly though, the prospects for new business were rated as less bright than those for refinancing –although there were indications that willingness to finance larger deals (€100m+) was creeping back among finance providers.

For the most popular asset classes of commercial office, followed by residential and retail, said Flatow, “The much-cited credit crunch is actually a moot issue – classic core assets will generally find a finance partner.”

The latest readings provide little support for the view that alternative lenders are making up big ground on the traditional sources of finance, although alternative lenders said they were being approached, as before, for the purpose of equity-like and debt-like forms of financing. Flatow said, “The FAP Barometer confirms our own experience with alternative lenders.  Serving as supplementary finance partners parallel to the banks, they are increasingly in demand in equity and debt fundraising. There is plenty of potential in this segment.”

The quarterly FAP Barometer surveys a broad cross section of market participants in the financial sector, the majority of whom are directly responsible for granting commercial real estate loans in Germany. It also considers new lenders who are increasingly playing an active role in lending, such as pension funds, insurance companies, debt funds and private equity funds. Research is carried out by market research group Bulwien Gesa on behalf of Flatow Advisory Partners, who manage the index.

The Barometer is still a new measure, and was only set up last year, so it is still finding its feet as an accurate gauge of the financing climate. Response rates, in REFIRE’s view, are still somewhat low to rule out the possibility of small sample size distorting the outcome. Nonetheless, it can develop into a useful tool – perhaps less for its absolute values as for flagging shifts in sentiment or underlying trends.