There is no shortage of financing for real estate investments in Germany, but banks’ increasing reluctance to fund developments has created a space for mezzanine funds to step in, experts agreed at Real Asset Media’s Germany Investment Briefing, which was held in London this week.
‘The market is booming and there is lots of finance available for real estate investments,’ said Markus Beran, Head of Origination International Investors, Berlin Hyp. ‘Banks tend to favour core investments. Low cap rates mean there is less money available to lend and the risk assessment are more thorough. We are definitely more cautious’.
Banks’ caution has opened the floodgates to alternative financing.
‘Traditionally in Germany banks have been so competitive that there hasn’t been much room for mezzanine funds to grow,’ said Thomas Veith, Partner Real Estate, PricewaterhouseCoopers Germany. ‘But in the last one or two years the situation has changed. Banks have become more reluctant to lend, so there are more mezzanine funds for development, especially in the residential sector’.
Part of the reason is that construction costs have increased significantly and ‘developers have problems getting construction companies to finish the buildings,’ said Michael Becken, Managing Director, Becken Invest. The riskier context is making banks less keen to finance developments.
‘We focus on office and residential development in the top 5 cities in Germany, but recently we have started an asset management department for institutional investors, focusing on mezzanine funding for development,’ said Becken.
One sector that is only set to grow is green financing, as investors, landlords and tenants become more aware of environmental factors and also of their positive effect on the bottom line.
‘Green financing is becoming more important,’ said Christiane Conrads, Head of German Real Estate Desk, PwC Legal UK. ‘Investors are looking at energy consumption and all the green credentials of a building. There has been a realisation that green buildings have higher rents which means better yields for investors’.
The demand for green buildings extends to the residential sector, said Robert Abt, Chief Transaction Officer, Round Hill Capital: ‘We see especially younger people wanting more energy efficient buildings for social as well as economic reasons. Environmental factors are becoming increasingly important’.
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