Germany experiencing shrinking funding gap, but lower bank margins

Never far from the forefront in the debate about the commercial property funding gap in Europe is property advisory group DTZ, whose barometer attempts to measure the pulse of supply and demand for financing in the sector. DTZ’s most recent readings indicate that the gap has shrunk by 42% fro $86bn to $50bn over the past six months, while the total volume of property requiring refinancing has fallen by 14% over the period – all of which sounds like very good news.

In fact, says DTZ, the core European commercial property markets of Germany, the UK, France and Sweden will see supply actually surpassing demand over the next two years. This is due to the fresh funding being made available by pension funds and insurance companies, who plan to raise their market share in the medium term from 2% to 7% in the continental European markets, and from 7% to 15% in the UK market. Overall the financing situation has eased considerably, DTZ believes.

These sentiments were echoed in one of the livelier discussions at last week’s real estate gathering in Frankfurt under the auspices of the Urban Land Institute, attended by REFIRE. The round table discussion concerned the ubiquitous real estate funding gap, and participants agreed that whether there was a funding gap at all or not depended on which market you were in. Germany was good, eastern Europe (except for Poland and the Czech Republic) was not, they agreed. Core is good, but non-core and secondary is bad.

Professor Sven Bienert of the IREBS real estate academy pooh-poohed the notion of a wall of uncovered refinancing in Germany. While this was unrealistic, he said, the bigger danger is that the increasing readiness to finance deals might lead banks to not pricing in adequate risk. “Again, we can clearly see that there are two pictures here”, said Bienert, a former managing director of Probus Real Estate in Austria.

His view was seconded by Marcus Lemli, the boss of Savills Germany, who said the picture had been transformed over the past six months. “The funding gap of €90m looked dramatic then, but that’s given way to a different scenario. We’re seeing more balance in the market, the capital markets are responsive, the listed companies are issuing corporate bonds, there’s even new life in the CMBS market (a reference to Gagfah’s recent €2bn refinancing). Certainly there are new sources of financing, but with the new debt funds from the pension funds and insurers looking for yields north of 8%, these are not going to be easy to find when the market is fixated on low-risk core property deals.

Helaba board member Jürgen Fenk was also sceptical that there was a big funding gap out there, suggesting that he didn’t know of any big project that wasn’t getting funding in Germany. The CMBS deal for Gagfah recently was encouraging, but the financing would have been raised anyway – just not as cheaply as with the securitisation, he said.

Jürgen Helm, head of structured finance at SEB AG, the German division of the Swedish banking group, agreed that CMBS will return, but “it will have to be a much more transparent product”, he said. Germany is still helped by bank funding sources underpinned by Pfandbriefe as covered bonds, and the robust nationwide system of Sparkassen, with their regional autonomy and specialised local knowledge. Other countries remain hampered by the lack of more debt products, and despite some good news stories, the banks are still very nervous, he added.