The market has switched from being stable for a number of years and the substantial impact of rising inflation and interest rates has affected players on both the equity and debt sides of the equation who have had to rethink plans to invest or or to retain investments.
“From a banking perspective, we can say that there are a few things that don’t work anymore, purely due to the fact that cash flow of given assets or expected projects are just not sufficient anymore,” said Berlin Hyp’s head of syndication Norbert Kellner.
There is a need to recalibrate and establish what investors can do from their side and how much additional equity they can bring, or are there additional players such as mezzanine lenders. Banks are a bit limited due to the re-ratings and because they have fully deployed loan books.
Berlin Hyp’s response was to focus on core assets and locations and a mix of residential, office, logistics and, to a limited extent, retail.
“We all know that there is another impact to be expected on offices,” Kellner added. The affects of home office working are already being realised in the USA.
“We definitely have to expect something like that is coming here also,” Kellner said. “But we are still very confident there are offices which we can finance and want to finance. But let’s say the split between those which get finance and those which can’t get any finance will be a bit bigger.”
While logistics and modern residential are of interest, the big question mark is over retail and older assets where there might be ESG issues and a need to make assets conform with the EU taxonomy. The possibility of a debt funding gap but there is a willingness among lenders to collaborate to find solutions.
“At the moment there’s a lot of willingness to really discuss things, to find a solution and not to kill transactions. There will be some tough issues for some and on the project development side there are some developers who just can’t continue with some projects, but overall there is a lot of common sense to get together.”
Kellner added that while some may be hit, his hope is that that the number can be limited.