Germany set for distress

Continental Europe’s largest market will see a rise in volume of deals over the next two years, with experts predicting a greater willingness to dispose of debt.

Germany is set for an increased number of distressed property deals, according to new research out today.

Corestate Capital, the Zug-based firm, and the Real Estate Management Institute of the EBS Business School said there would be an increase in distressed real estate assets in Germany for sale in terms of both number and transaction volume over the next two years.

Financial experts whom Coresate and the EBS polled expected a higher willingness to dispose of distressed real estate debt in 2013 and 2014. Meanwhile, German banks would exercise more caution in their future lending, and slightly raise debt servicing obligations for debtors.

“The Survey on the State of Real Estate Financing and on the Distressed Real Estate Debt Market in Germany” was conducted between June and August this year and was sent to nearly 50 executives in the banking sector, including chief executive officers, board members, and managing directors, representing 32 private commercial banks, state-owned banks, and mortgage credit banks. The total assets of the banks participating in the poll total approximately €5.4 billion or 65 percent of the German banking landscape in terms of balance sheet size.

Some 74 percent of respondents said they expected an upward trend in distressed real estate asset transactions in 2013, which rose to 78 percent for 2014.

Asked whether distressed real estate assets would be discounted by 20 to 30 percent, 38 percent of those polled said that would be the case in 2013, and 45 percent agreed for 2014.

The survey also found more than 60 percent quoted a limit of €50 million for the volume of individual real estate financing deals. Over the next two years, financing volumes are expected to remain at the current level or decrease marginally. This trend suggests that banks intend to reduce their financing exposure even further by downscaling lending volumes.

The share of non-performing loans  in Germany is estimated by 58 percent of the poll respondents to equal up to 10 percent of total commercial real estate debt.

Ralph Winter, founder and chairman of Corestate said: “It is safe to deduct from these findings that, as the volume of distressed real estate debt rises, an increasing number of real estate portfolios will be put on the market whose situation, while principally sound in real estate economic terms, may become distressed due to limited access to debt capital. This situation will cause prices to soften as the gap between core and non-core continues to widen.”