Refinancing is on the up

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Refinancing is on the up, according to JLL’s German Real Estate Finance Index (DIFI) for the second quarter, published this week.

‘Refinancing is slightly on the up because people have digested the ECB’s withdrawal from its QE program and Interest rates could also be cut in the US,’ Anke Herz, team leader Debt Advisory Germany at JLL, told REFIRE. ‘Obviously people are watching that.’

The DIFI sentiment indicator fell by 1.4 points in the second quarter to -11.4 points. Although the majority of the institutions participating in the survey did not see any changes over the past six months, nor expect any in the next six months, sentiment is more pessimistic than positive. JLL attributes the downturn to a noticeable slowdown in the financing situation.

As a result, the financing situation is down 7.2 points q-on-q – ‘because the market can’t lend at such high levels – especially in the Pfandbrief-driven market’, Herz said.

Two of the five refinancing instruments – real estate shares and bonds – are still listed in the red, although capital deposits, mortgage bonds and mortgage-backed securities are rated as positive. This is due to positive sentiment concerning both the current situation and expectations for the next six months. Slightly rising margins in the current climate are also making it easier to negotiate better conditions for refinancing, according to JLL. Real estate stocks and bonds have also recovered noticeably since the last quarter, but do not yet lie in the ‘healthy zone’. Refinancing via real estate shares in the coming six months appears to be a mixed bag: 17.4% of survey participants expect an improvement, but twice as many expect deterioration and 47.8% expect no change. 

There are significant deviations from the previous quarter in the spreads of unsecured bonds compared to government bonds: in this quarter, 40% of respondents expect spreads to widen further and the corresponding index has dropped by 40 points.

LTVs remain relatively stable and banks will follow increased pricing to an extent, according to Herz. However, she notes that an LTV of 70% a year ago is not the same as today as prices are higher. ‘As far as margins are concerned, hotel margins have fallen due to increased competition,’ she said. ‘Resi margins have increased as they were always quite low. Resi is typically more highly geared and thus more at risk from interest rate changes. We see in Germany that it has become harder to get an interest-only structure for clients.’

Retail financing becoming more challenging

The one asset class that is struggling to get financing is bricks-and-mortar retail, with the financing situation down to -46.4 points in the second quarter and to -48.3 points for the next six months. Logistics, however, is starting to improve again at -6.9 points, up from -13.8 points in the first quarter.

The office and residential sectors, which in the past were more of a driving force, were both weaker in the second quarter, having been in negative territory since the beginning of the year. However, hotels witnessed the biggest decline as the sub-index fell to -3.6 points, down from 1.9 points in the first quarter, likely due to the lack of business hotels in major cities. (ssk)