German NPL wave to come

Transaction volumes of non-performing loans in Germany are set to rise next year as more than €3 billion of loans comes up for renewal.

Germany’s biggest real estate asset management service provider, Corpus Sireo, has pointed to the amount of real estate securitisations that took place in the run up the 2008 global financial crisis and suggested original investors will be under pressure to find solutions to refinancing issues. And if all efforts to restructure debt fail, there will be a winding up of securitisation structures.

The Cologne-based firm has found that some €100 billion of commercial real estate debt will mature in Germany between now and 2016. Out of this total, approximately €60 billion will fall due in 2013 and 2014. The formerly wide-spread practice by banks to shoulder debt rollovers or debt rescheduling, even in difficult situations, will not be an option in many instances, given the enormity of the sum, said the firm.

Tim Brückner, the head of the client financial institutions group at the company said: “The majority of the real estate securitisations will mature next year, and we are anticipating a sum exceeding €12 billion in Germany. This will raise the pressure on the original investors to identify solutions for the securitised financings. If this effort fails, it will be the servicers’ job to pave the way for an orderly wind-up of the securitisation structures.”

In addition, the ability of the commercial banks to front new financing arrangements or to extend existing ones will be limited.  This situation will coincide with a rise in the NPL volume. The volume matches the estimates given by others in the industry who also expect outside help for about a quarter of all distressed financings. Corpus Sireo said it believed more than €3 billion worth of commercial real estate portfolios in Germany would be taken over by new asset managers in the medium term.

The firm added: “International investors are also showing great interest in the German real estate market. In addition to direct and indirect real estate investments, they are expected to step up their commitments in the area of mortgage-backed NPLs. A look at other countries in Europe suggest as much. If you take, for instance, the trading volumes in the UK, whose NPL market is roughly the same size, increases in Germany seem likely against the background of the general market trend.”