Christof Winkelmann: A good bank values long-term relationships with its clients

Lenders should support their clients throughout the cycle, says Aareal Bank’s Christof Winkelmann.

There is a popular aphorism that banks will provide an umbrella when the weather is fine, but snatch it back when the clouds appear.

However, Aareal Bank, the 100-year-old Wiesbaden-based property lender, has a different philosophy, says Christof Winkelmann, its chief market officer and a member of the management board.

“We have clients that like to buy assets in the good times, and they’ll make money on those. However, we also have clients that tend to buy more when there’s something of a dislocation in the market, or some turmoil or uncertainty.

“They will take a point of view as to where things will be evolving, so will buy in a downturn – and they will need capital to go along with [this outlook],” Winkelmann says.

“We’re there for our client throughout the cycle, because otherwise it’s not really a client relationship,” Winkelmann says.

This was the case in the recent covid crisis. “We carefully increased our book during the crisis, with clients taking advantage of the market dislocation at exceptional risk-return parameters. Our in-depth real estate expertise benefited our long-term clients.

“Both our clients and us are there for the medium to long term. We’re not just there for the next couple of years to then go away.”

Long-term approach pays dividends

He says this approach has had merit, as the bank’s recently published results demonstrate. “Crises all have something in common: they start and they end. The question is how long they last and how severe they will be.”

The bank has a similar attitude to supporting its clients’ moves towards achieving net-zero carbon. “ESG is a process, it’s not a state, and we, as a bank, can help that process,” Winkelmann says.

However, it is wrong to assume that it is a quick, one-off action that leaves assets and balance sheets green the next day. It is a transformation process.

‘Crises all have something in common: they start and they end. The question is how long they last and how severe they will be.’

Christof Winkelmann, Aareal Bank

“We can support that transformation,” he says. “With our green-finance framework, we agree on conditions and duties the borrower has to fulfil and report throughout the full term of the loan.”

He adds that this is something which is beneficial for borrowers, the bank and the environment.

“It fulfils a very good purpose. We set incentives, so once you have converted a building, your cost of capital will go down.”

While some sectors, notably hospitality and retail, were hit hard because of the covid pandemic’s effect on the markets, Aareal has always taken the view that hospitality would bounce back.

“We’re firm believers in hospitality. I think it would be foolish to assume that people won’t go on vacation and will instead spend all their time at home. People will always wander the world.”

Not only has hospitality begun to rebound, there is also a lot more travel than before covid.

“Have you tried to book a personal or business trip lately? Prices have gone up significantly, but people are still willing to spend the money. They want to travel, they want to go and see places, both for leisure and for business,” he adds.

Interest rates impact

Although covid accelerated the decline of physical retail, the pandemic also showed that when people were able to go shopping again, they did. “It showed that attractive physical retail has a reason to be there, though the divide between good and bad retail has widened.”

All areas of real estate have also been affected by the rise in base rates. Transactions decreased dramatically both in Europe and North America.

But Winkelmann is hopeful and points out that what it takes to get markets moving again is not necessarily for interest rates to decrease, but for them to stop increasing.

“Once the market sentiment is that interest rates are at their peak, that they won’t increase further, you will see transactions coming back to the market. That’s when sellers and buyers will be able to find a price that they can both agree on.

“It will liberate the markets and get transactions flowing again.”