Climate for financing in Germany hits record high

The FAP-Barometer, now well-established as a German index for measuring the real estate financing climate, showed it highest-ever reading for the first quarter of 2015, indicating that the environment for financing commercial property has never been as good.

The FAP reading, managed by Flatow Advisory Partners in Berlin, takes quarterly soundings from providers of real estate finance as to how they view the attractiveness of financing different market segments. The data collection is carried out by real estate research group BulwienGesa.

The reading for Q1 is +2.87, up from 2.33 in the last quarter. Financing conditions are seen as having improved by 53% of those surveyed, while 47% view the market as unchanged – with no respondent believing that conditions have disimproved. About half of respondents noted falling liquidity costs.

According to founder Curth-C. Flatow, “The positive mood among financing institutions stems from the new business they are writing. Nearly 60% report increasing levels of new business, the highest level since end-2012. We could even be about to see another record year in German commercial real estate.

The average sums lent by 51% of respondents are between €10m and €50m. Loans of between €50m and €100m have risen by 7.5%, while loans of above €100m are up by 1.1%. Noteworthy is perhaps a shift to the financing of non-core assets, due to stiff competition in the core sector, as well as the demand for financing assets in C- and D-locations. Niche segments and operator-driven assets such as hotels and student accommodation are also attracting more attention here.

With financing of existing assets being made available at LTVs of 30% and 100%, the average across all lending and asset categories is 71%. Not such good news for finance providers is that margins are currently between 65 and 525 basis points, with the average being 158 bps, down from last quarter’s average of 176 bps.

Project developments are seeing LTC values of between 45% and 90%, with the average being 72%. Margins are up to 300bps, with the average being 201bps, down from last quarter’s 224bps. This indicates a fall in margins over the last 12 months of more than 22%, while for project developments they have fallen by more than 10%.

The study and accompanying graphics can be downloaded at: http://www.fap-finance.com/de/barometer/