A recent survey by Engel & Völkers Capital suggests that demand for alternative real estate financing other than from traditional bank lenders could increase this year by up to 22%.
More than half of the project developers it surveyed said they had had to cancel transactions during the period of the pandemic over financing issues. Talking about his own company Engel & Völkers Capital board member Jörg Scheidler said, "Already over the first few months of the year, the number of financing enquiries received by Engel & Völkers Capital was significantly above the average of the last quarters. We are therefore assuming an overall increase in enquiries for alternative financing of up to 22% for 2021."
Figures from the ECB's latest Bank Lending Survey show the effect of tightened lending criteria for the banks in the first quarter, while also showing an increase in the demand for loans from German companies. Hence the increasing dependence on alternative financing solutions outside the traditional channels.
Scheidler said, "The current situation makes flexible, fast financing solutions more important than ever for the real estate industry. The Bank Lending Survey shows that the gap left by classic capital providers in the financing market is widening. More and more project developers are therefore facing major financial challenges - both in terms of initiating and completing construction projects."
"To avoid economic losses from a lack of liquidity in the construction sector, alternative financing vehicles such as subordinated secured capital instruments, whole loan structures or mezzanine capital must close the debt gap and thus stabilise the market. This is made possible above all by the fast and unbureaucratic lending processes, which significantly shorten waiting times until loan approval and thus give all participants more planning security," he added.
Interestingly, comments from Frankfurt-based lender Helaba suggested that, at the other end of the risk spectrum, there was no lack of willing bank lenders to refinance existing 'trophy' assets, such as prominent Frankfurt office tower Silberturm. In fact, with banks' greater risk aversion now, they're all clustering around the safest core properties, with top covenant and good leases with blue-chip tenants.
The Silberturm, in the heart of Frankfurt's central business district, was just recently bought by a joint venture between Austrian family office IMFARR and Swiss investor SN Beteiligungen Holding through a share deal for €700m, in one of the largest real estate transactions in Europe since the onset of COVID-19. According to Helaba, the deal was agreed in December 2020 but not completed until March 2021. The seller was South Korea’s Samsung Group, which acquired the building in 2014. The tower is fully leased to German railway Deutsche Bahn.
Helaba agree to be the sole underwriter of the senior loan, while also providing funding through a structurally subordinated mezzanine line. Helaba's Fritz Müller, head of regional lending, put his bank's getting the nod down to the good relationship his bank had with the two buying partners, in the face of stiff competion. "Competition for the transactions was really hot, with banks keen to finance trophy buildings, like the Silberturm.
Helaba is already in talks to syndicate the loan between Helaba's own owners, the savings banks and other German real estate banks. Helaba's €36.3 bn loan book is between 45-50% allocated to the European office sector.
