Uptick in German financing climate cause for optimism

With the issue of alternative sources of real estate financing never far from investors’ minds, we keep a regular eye on Germany’s FAP Barometer, a quarterly index that takes the pulse of the commercial real estate financing industry, carried out amongst individuals in a pool of banks and credit institutions who are directly responsible for granting commercial real estate loans.

The latest reading of the barometer shows sentiment among analysts about the prospects for financing continue to brighten, albeit only marginally. Quarter on quarter, the FAP Barometer perked up slightly from +0.15 to +0.89 Barometer points. "Whether the sentiment will linger on the currently positive level or whether the spell will finally lift to bring financing back up to speed remains to be seen," said Curth-C. Flatow, founder and managing partner of the Berlin-based FAP, who manage the index, along with research house BulwienGesa as scientific partner.

Of the 225 respondents for the latest reading, 28% said parameters for the terms of financing have improved by Q3, up from the 22% noted for Q2. Only 2.2% said the financing climate was restrictive, down noticeably from the 11.8% voting that way last quarter. 69.6% consider the situation ‘stable’, up from 66.7% last quarter.

Other notable results from the latest reading include the importance of new client relationships, with 17.4% of the respondents saying that acquiring new client relationships is of paramount importance, replacing income or yield (15.2% percent) in the lead position for the first time.

Also noteworthy was that the gap between loan tranches in new business keeps widening steadily. Very large loan volumes in excess of €100 million (Q3: 2.5%, Q2: 2.1%, Q1: 0%) are increasing, as are very small ones of less than €10 million (27.5%). Then as now, a majority of 52.5% report a share between €10m and €50m. Finally, 17.5% of the loan volumes involve amounts between €50m and €100m.

What’s also clear is that llternative lenders, while playing as important a role as before, have now become established. 35% of the respondents reported increased demand, up from 32.6% percent in Q2, but down from around 50% at the end of 2012. “Since capital adequacy requirements remain high, keeping your eyes open for alternative or combination financing structures continues pays off,” commented Flatow.

The full Q3 2013 Quarterly Report for the FAP Barometer including charts is available as download at: www.fap-finance.com/de/barometer.aspx