BayernLB: a strategy for a changed market

German lender BayernLB has altered its outlook in a more challenging environment, which has brought more competition in debt markets, especially in the UK

The current market environment is challenging, especially in the office sector, where BayernLB sees a structural change, according to the Munich-based investment bank’s global head of real estate, Alexander Huber.

“The interest rate environment made it difficult for real estate,” Huber says. “Seeing that now levelling off, there’s a slightly more positive outlook for investors. They have a solid base to calculate on.” However, he says 2024 will be another challenging year.

The real estate division is a core business area for the BayernLB Group, which has established itself as one of Germany’s top real estate financiers and asset managers. The bank finances property in all asset classes, including offices, retail space, residential property and logistics. It serves developers, private investors and housing companies, institutional funds and asset managers.

Huber explains how the recent change in outlook will affect the bank’s strategy. The bank regards itself as being well positioned, he says. “We are always looking for a mid-term and a long-term view,” he says and adds that BayernLB is still growing its business, but at a slower pace than would previously have been the case.

More competition in UK lending market

BayernLB’s international business is run from New York, Milan, Paris, Amsterdam and London. Laura Williams, head of real estate in the UK, says there has been a shortage of transactional evidence there recently and consequently there has been much more competition in the lending market.

“I think there’s a flight to quality from all lenders at the minute. Everybody wants to finance the same best-in-class assets so consequently there’s a lot of competition,” she says.

The London office is focused on growing the UK book, she explains. “We would like to work with the best-in-class sponsors. The bank is very supportive of growing the book across Europe,” she adds. “The benefit we have at Bayern in London is that we’re able to follow our clients across Europe as well. So, if they’re UK based we’re able to follow them into continental Europe as well. That means they know that they’ll be dealing with the same team and the same product structuring in Munich as well, so we have the expertise to follow our clients, which is a huge advantage.”

Williams says that just as there is no shortage of equity, there’s no shortage of debt. “There is demand for debt, but it’s become extremely competitive.”

Naturally, there are differences between the different real estate asset classes. “In terms of the asset classes that our investors are focusing on, residential is extremely popular; as we’ve seen,
there’s a big bifurcation in the office market and people wish to invest in best-in-class offices,” says Williams.

Residential importance

“Logistics is still a very strong asset class as well. There’s PBSA and some of the more operational type real estate sectors as well, such as data centres and co-living. But BayernLB is very much focused on residential, logistics, best-in-class offices and the best retail.”

“I would say that, for the UK, residential is quite an important one for us because we just got into that and we see it as an opportunity to further diversify the portfolio going forward in a defensive asset class.”

She says this was one the main takeaways from the crisis: to be overweight in residential rather than other asset classes.