The funding gap in German market is ‘yet to be bridged’

The funding gap in the German market is yet to be bridged, delegates heard at Real Asset Media’s European Debt & Investment briefing, which took place recently at Groß & Partner’s offices in Frankfurt.

“The requirements for borrowers are more stringent and the banks are less prepared to lend, so there is a funding gap,” said Anna Kreuter, transaction management group leader, GLAS. “The alternative lenders need to step in.”

It is difficult to close the lending gap, as everyone is focused on risk and worried about the exit, there’s little equity available and development finance is virtually non-existent, experts agreed.

“Traditional lenders are keen on doing business but only if it is super core,” said Katja Gramatte, head of real estate financing, BNP Paribas Real Estate Investment Management. “If the asset has a little scratch it’s punished and there is no transaction. We have older buildings in our portfolio and we’re faced with higher refinancing rates.”

A focus on quality, strict regulatory oversight and the need to be ESG-compliant are a problematic combination in what is already a difficult market.   

“The problem for the next ten years is not traditional financing but it’s ESG requirements,” said Jürgen Helm, head of European senior debt originations, PGIM Real Estate. “We need to invest heavily in existing stock just to protect its value, and the question is who is going to pick up the bill?”

Enormous funds are needed for transition financing at a time when conditions are difficult and market players have to make hard choices.

“ESG is an important topic but the priorities have shifted,” said Philipp Ellebracht, country head Germany, Incus Capital. “People are focusing on their existing portfolios and on providing the returns they need because it’s an imperative. We have lost a lot of value and the market is out of balance.”

The increasing level of scrutiny from the regulators also does not make things any easier, Kreuter pointed out, and it is affecting the existing financing as well as new deals, because the need to provide additional information on what’s in the books is slowing things down.  

“When cashflow is tight you have to be more conservative and aligned to what the authorities require,” said Markus Beran, head of origination international investors, Berlin Hyp. “They have pulled out deals and really check what we are doing, yet this is not 2008 and this crisis was not created by the banks.”

In fact German banks, traditionally cautious, are in a strong position and there’s no expectation of a wave of problematic loans.

“The good news is that banks are in good shape and alternative lenders have some €20 billion of dry powder to deploy in Europe,” said Helm. “The problem is that everyone prefers new acquisition financing to refinancing, and that everyone is chasing the same deals in the market.”