German investors need alternative financing resources

A new survey sponsored by the global property manager Schroder Property reveals that, with banks being restrictive in granting real estate loans, German investors in the sector need to seek out alternative sources for financing in the region.

With banks continuing to be reluctant to provide financing for commercial real estate deals, German investors in the sector need to seek alternative financing resources. Despite this, many investors in the region are not yet taking advantage of these alternative financing resources, according to a survey conducted by Schroder Property. 

Currently, banks are being at least as restrictive in granting real estate loans as they were after the collapse of Lehman Brothers in 2008, according to 74 percent of the 122 German real estate investors surveyed. Six out of ten investors told the global property manager that it is either ‘difficult’ or ‘very difficult’ to obtain financing for commercial property. 

Ultimately, very few (only six percent) anticipate any improvement in the foreseeable future. The reason for this perceived dearth of conventional financing for commercial real estate is because many financial institutions are pulling out of the real estate financing segment. 

As a result, Philipp Ellebracht, product manager for continental Europe at Schroder Property, said: “There is a need for alternative financing sources.”  He pointed out however, that these alternative sources are “barely” being taken advantage of in the current market.

While 76 percent of respondents view lending by real estate loan funds, insurance companies or a combination of the two as a sustainable alternative form of financing, only 11 per cent of those surveyed have already invested in them. The investments so far have been small with average mounts of less than €100 million, and almost exclusively in the domestic market. 

“Real estate loan funds remain a niche segment,” Ellebracht added about the region.

Still, only 29 percent of respondents were considering investments in real estate loans and real estate loan funds over the next 12 months. There is a divergence of opinion regarding the likely impact of the new Solvency II regulations on investment in real estate loans. 

With regard to real estate loan funds, 83 per cent of real estate investors surveyed believed it was as important that the manager of such a vehicle was also responsible for asset management capabilities. The study also revealed which real estate risk classes a real estate loan fund should focus on. Of those surveyed, 42 percent named core properties while 34 percent said core plus properties. Meanwhile, 68 per cent would invest in senior secured loans. 

Additionally, while 63 per cent would steer clear of nonperforming real estate loans, 29 percent said that they were becoming increasingly interested in this investment class. 

The survey was conducted in July and August 2012. Those polled included German asset managers, insurance companies, fund of funds, family offices, independent financial advisers, pension funds, cooperative banks, savings banks, foundations and employee benefit schemes.