Introduction. Survey on Real Estate Financing and Distressed Real Estate Debt 16 October 2013

Transcription

1 Index Executive summary Page 3-6 Introduction Page 7 Methodology Page 8 Financing Situation for Commercial Real Estate Pages 9-32 Situation of Distressed Real Estate Debt Pages

2 Introduction This survey assessed the financing situation for commercial real estate in Germany from the banks perspective. It consequently pursues the previous research undertaken by the CORESTATE Research Unit for Distressed Real Estate Debt. In 2012, the REMI Discussion Paper (No. 4) focused on the market for distressed real estate assets and studied the lending and investor environment to identify opportunities and threats that investors face on the market for distressed real estate. Subsequently, an annual research project was launched, surveying the current situation on the market for commercial real estate financing. The findings from the 2012 survey supplemented the insights gained through the Discussion Paper and indicated the direction in which the market is moving. This study builds upon the last year s poll methodology and employs a comparative analysis of the key market players opinions in order to evaluate how perceptions have changed (a change in perceptions). 7

3 Methodology Banking sector executives were polled between May and July Number of executive approached = 57 CEOs, board members, managing directors Number of banks polled = 32 Commercial Real Estate financing banks, operating in Germany* Response rate Response rate in relation to the number of persons contacted = 58% (33 individuals). Response rate in relation to the number of banks contacted = 81% (26 banks). Total assets of participating banks: 2,563bn. This equals to 72% of the German banks, active in Commercial Real Estate Financing.** * Banks with Germany based CRE finance departments with on-going operations (i.e. still with new business). ** Based on the consolidated financial statements of participating banks, divided by the total assets of all banks in Germany, with Germany based CRE financing. (Source: Federal Association of German Banks (Aug. 2013) / 2012 financial statements and own research) 8

4 Financing Situation for Commercial Real Estate Poll participants were asked about usage type, new business, and risk profiles of the financing granted. Subsequently, the results on the key determinants of financing volumes, gearing ratio (LTV), maturities, debt service, and the core vs. value-add spread for the stated asset type will be discussed in detail. The aggregate expectations for these determinants in real estate financing will be presented in a detailed chart. X%* of the poll respondents expect the key determinant to x% increase rapidly decline / slightly increase / slightly x% decline rapidly x% remain stable * In some cases, the expectation percentages do not exactly add up to 10, due to rounding. 9

5 Stable Gearing Ratio for Residential & Logistics Average gearing ratio of individual real estate financing deals / respondents outlook Expectation for 2014 Expectation for 2015 Residential 10 95% 95% Logistics 75% 25% Leisure / hotel 10 up to more than Q: With regard to your top three asset types lent to, up to what leverage ratio (loan to market value) does your firm provide real estate loans? Please tick the boxes that apply and indicate your outlook for 2014 and 2015 (unchanged, increasing, rapidly increasing, declining, rapidly declining ). (n = 23, 3, 2) 19

6 Stable to rising Gearing Ratio for Project Developments Average gearing ratio of individual real estate financing deals / respondents outlook Expectation for 2014 Expectation for 2015 Project dev. Residential Project dev. business 10 up to more than % 66% Fewer market players* and higher LTVs Q: With regard to your top three asset types lent to, up to what leverage ratio (loan to market value) does your firm provide real estate loans? Please tick the boxes that apply and indicate your outlook for 2014 and 2015 (unchanged, increasing, rapidly increasing, declining, rapidly declining ). *n = 2, 3 (2012: n = 4, 6) 20

7 Maturities Results Against last year s expectations of shortening financing maturities, standard loans vary between 5 and 7 years now (2012: 3 to 5 yrs).* Especially residential real estate loans have a substantial longer life span: over 65% of the loans handed out in 2013 have a maturity of more than 7 years (2012: ~4). Expectations for 2014 and 2015 suggest that maturities for many asset classes will remain stable and in the case of Office and Shopping Center financing, maturities may increase slightly. * Standard loan maturities = Life span of the loan agreement. For 2012 results, see Rottke / Versmissen (2012): Survey on Real Estate Financing and Distressed Real Estate Debt

8 Stable Maturities for Office & Retail Average maturities of individual real estate financing deals in years / respondents outlook Expectation for 2014 Expectation for 2015 Office 25% 95% 10 Retail 25% Shopping Center 75% 25% 88% 10 up to 3 years 3 to 5 years 5 to 7 years 7 to 10 years more than 10 years Q: With regard to your top three asset types lent to, what is the average maturity of real estate loans granted by your firm? Please tick the boxes that apply and indicate your outlook for 2014 and 2015 (unchanged, increasing, rapidly increasing, declining, rapidly declining ). (n = 20, 16, 8) 22

9 Rising Share of Distressed Real Estate Assets Current share of distressed real state debt in % / respondents outlook Expectation for 2014 Expectation for % 55% to 1 1 to 2 2 to 3 3 to 4 over 4 Q: What is your estimate of the current proportion of distressed real estate debt of all real estate debt in Germany? Please tick the box that applies and indicate your outlook for 2014 and 2015 (unchanged, increasing, rapidly increasing, declining, rapidly declining ). (n = 31) 36

10 Rising Number of Distressed Asset Transactions Development transaction volume of distressed real estate assets / respondents outlook increasing 28% Expectation for % declining increasing Expectation for 2014 rapidly increasing rapidly declining 16% declining rapidly increasing increasing 34% Expectation for 2015 rapidly declining 19% declining 5 stable 41% 41% stable 38% stable Q: How do you expect the transaction volume of distressed real estate debt to develop? Please make estimates for 2013, 2014 and (n = 32) 37