Development finance badly hit by lending crisis in Germany
Development finance in Germany has been particularly badly hit by the lending crisis, experts agreed at Real Asset Media’s Debt Investment briefing, which took place recently in Franfkurt, hosted by Ashurst.

“Project financing is in real trouble,” said Fabienne Hartmann, vice president real estate financing, Loanboox real estate. “The financing side has set conditions which are not realistic, so it’s impossible to get projects going. There are a lot of projects that are ready to go but there are no lenders available.”
Senior lenders are always the first port of call because they are less expensive, but investors have increasingly had to turn to alternative lenders.
“We’re actively engaged in development finance, if fully repriced and with realistic business plans,” said Matthias Thomas, business development and client relationships, CAERUS Debt Investments. “Returns are appealing to Anglo-Saxon investors. German capital acknowledges that real estate debt is a superb asset class, but everything related to real estate is now put into one box.”
Negative sentiment abounds in the market as many people had their fingers burnt. The prevailing mood now is for playing it safe or sitting it out waiting for things to improve. Taking risks or looking for opportunities is not on the agenda.
“More creativity is needed these days,” said Hartmann. “It is better to build a consortium, banks incur less risks and conditions for the clients are better.”
Collaborations can be a solution, but complex financial structures do not always work.
“Project development is in dire trouble because of cost increases,” said Filip Kurkowski, partner, lawyer, Ashurst LLP. “We’ve seen different types of restructuring situations, not all of them successful. The rule is that the more layers of debt, the more lenders with mezzanine debt, the more difficult the restructuring is. Often, the lower level of debt will get nothing and even senior lenders have to take a hit.”

A successful restructuring is usually a one-off and it succeeds because of its size and relevance or because foreign lenders have decided to take the plunge.
“A €1 billion project development plan has been rescued by different participants, including from the UK, but that was because of its size,” said Kurkowski. “In most cases debt funds and banks are trying to push the problem into next year. There will be write-down of debts, and this will lead to repricing.”
Developers, like everyone else, have to get used to more realistic levels of debt, as interest rates are likely to stay higher for longer.
“Actually it is good if people work through the lack of debt financing,” said Hans Vrensen, European head of research and strategy, AEW. “In the UK the banks have stayed away from development finance, so it’s all been financed by equity. People had to put their own money at risk, which is not a bad move. Discipline in the market is a good thing.”
Looking ahead, the problems in the market are far from over but there are reasons to look at the future with a little more confidence.
“The fundamentals are strong, there is no recession, interest rates are still below the long-term average and the banks have very strong reserves,” said Vrensen. “Debt will become more accretive as property yields have widened out. Going forward, I am quite optimistic that the rebound could be quicker and better than we currently expect.”