Corpus Sireo sees refinancing wave as “growth market”

The expected rise in non-performing loans in Germany’s commercial real estate market should trigger a surge in demand for German asset management skills over the coming years, according to a new study published by Cologne-based Corpus Sireo, which itself is one of the market’s leading asset management companies.

With the volume of German non-performing property loans up for renewal in 2013 likely to exceed €3bn, against a backdrop of total commercial property debt due to mature by 2016 of over €100bn, many banks will simply be unable to reschedule outstanding debt, which will provide new opportunities for specialist asset managers, the study concludes. About €60bn of this total is falling due in the next two years.

According to Tim Brückner, client group leader for financial institutions at Corpus Sireo, “The majority of the real estate securitisations will mature next year, and we are anticipating a sum exceeding €12bn in Germany. This will raise the pressure on the original investors to identify solutions for the securitised financings. If this effort fails, it will be the servicers’ job to pave the way for an orderly wind-up of the securitisation structures.”

The researchers also point out that the ability of the commercial banks to front new financing arrangement or to extend existing ones will be limited, leading to a rise in NPL volume itself and by extension, to a rise in demand for asset management solutions.

At a recent conference in Frankfurt on non-performing real estate loans, Clarence Dixon of Hatfield Philips raised a laugh by pointing to the good employment prospects of special servicers over the coming years – but his point was not lost on his audience. Many industry players have said they expect about a quarter of all distressed financing to likely need outside help. The Corpus Sireo researchers believe that more than €3bn of German commercial real estate portfolios will be taken over by new asset managers in the medium term. Local market know-how will be needed by the more than €60bn in foreign funds looking for suitable buying opportunities, including the still under-exploited market of corporate real estate NPLs.

Ingo Hartlief, the CEO of Corpus Sireo Asset Management, claims that the developments in Germany for non-performing commercial real estate loans will generate its own growth market for asset managers. “The properties behind such loans are usually not prime assets, but distressed properties well away from the metropolises and in dire need of management. Only a hands-on effort directly on location, with a professional, experienced asset management in place on the next tie, will be able to resore the marketability of such properties. Banks and financial service providers prefer not to develop this specialised type of expertise because it is only temporarily required and because experienced contractors who provide this service are readily available.”