As German property financiers withdrawfrom most of Europe, Landesbank Hessen-Thüringen (Helaba) is expanding its property lending and could pick upbusiness that formerly went toretreating rivals, such as Eurohypo, Hypo Real Estate and HSH Nordbank.
“When they are good customers with good conditions, yes,” says Bruno Sommer, head of Helaba’sglobal property lending business.
Helaba is continuing to lendwhere others are reining in their property finance operations. The German bank felt it had been priced out of the market during the boom years that were 2006 and 2007. Last year, Helaba wrote €10.4bn in new loans, boosting its property loan book to €37bn, and Sommer says the bank may reach a similar amount this year, “depending on the market“.Sommer declines to discuss upper limits but agrees that, glancing at a number of recent deals, a €100m loan is still possible.
“We have always been conservative and movedonly in markets where we felt comfortable,” explains Sommer. When hesays conservative, he refers to loan-to-value and debt service coverage, but also to assets, location and customers.
As a consequence, Helaba has never felt the need to securitise its loans. It refinances through capital markets and the German Pfandbrief market, a type of covered bond. The conservative attitude applies to the wholeLandesbank,whoseheadoffice is in Frankfurt(see panel).
Helaba recently announced that one of its senior property bankers, Ingeborg Warschke, will move from the Paris office, which she built, to London. Warschke, who has worked in the UK before, will head the bank’s real estate finance team in the capital. Peter Wilson, who had been head of the branch for nine years, will become senior relationship director. Helaba’s London branch has existed since 1980. The Bank has been operating in Londonas a real estate financier since the beginning of the 1990s. At the same time, Helaba is turning its French representative office into a full branch, led by Roland Fuchs. Sommer says that the bank is still looking to add a few new bankers to its teams in London and Paris.
Apart from the domestic market, Helaba focuses on the US, London, Paris, central and eastern Europe and Scandinavia. Offices and retail account for the largest portions ofHelaba’s property loan book,becausethe bank wants to finance only multi-functional assets (see table, opposite).
UK posts biggest price correction
Helaba has chosen its target countries for different reasons. In the US, for example, it has already got its largest exposure outside Germany. The increased focus on the UK stems from the belief that the UK property market has seen the biggest price correction and is therefore set to bounce back quicker than other European markets.
“The market has fallen so far that we will soon see good opportunities,” says Sommer. “We’re not far from the bottom.”
In the UK, Helaba teamed up with Nationwide and Deutsche Postbank to make a five-year loan at 60% LTV to the Reuben Brothers’ Aldersgate Investment to refinance the Eden Centre in High Wycombe. RBS had provided the original development finance. In France, the bank clubbed together with other German banks to refinance the T1 tower, owned by Canadian pension fund Caisse de dépôt et placement du Québec’s SITQ subsidiary. Helaba‘s contribution of €100mwasthe biggest part of the €400m refinancing loan.
Meanwhile, the bank has syndicated part of that loan, but Sommer declines to comment further on it, apart from explaining that Helaba is still the biggest lender in the consortium and that the bank intends to keep the asseton its books. Sommer likes doing club deals, but they do not necessarily have to involve other German banks.
Sommer sees Poland and the Czech Republic as “relatively stabile and having potential“.
In March, Helaba provided Europolis with €80m in finance to purchase the Saski Crescent office building in Warsawas well as a logistics parkin the city. The bank acted as sole arranger and lender of the five-year loans.
Helaba likes Finland and Sweden because the two countries have transparent property markets. The bank gave Finnish property company Sponda a five-year €82m loan to refinance bonds maturing in 2010. Sponda and Helaba declined to provide further details on the pricing. In neighbouring Sweden, UK investor Boultbee received refinance from Helaba for three shopping centres. The German bank refinanced the Punkt and Gallerian shopping centres in Västerås and the S:tPer shopping centre in Uppsala for SKr975m (€92.1m). Boultbee failed to sell the assets last year.
Sommer says that Helabahas internal country allocations for the targeted €10bn of new business, but he does not want to reveal too much.“We will use the chances.We‘re not doing business just for the sake of doing business,” he says.
The US is its biggest market outside Germany, but that factdoes not mean that it will also receive the biggest portion of new funds available, says Sommer. In the US, the German bank focuses on 24-hour cities on the country’s east and west coasts. It also invests in residential portfolios but has no exposure to subprime.
At home, one of Helaba’s recent transactions involved the financing of a Berlin shopping centre, after Hypo Real Estate pulled out. Arab Investments bought the 23,000 m2 shopping centre from OFB Projektentwicklung, a developer wholly owned by Helaba.
Priority for existing customers
Despite all the talk of new business, Helaba’s existing customers come first. “They’ve got priority,” says Sommer. “I think it is fair because they did business with us when they could have gone to a cheaper rival.”
Like other banks, Helaba is taking a soft approach to clients who have broken loan-to-value covenants. “An LTV covenant breach is not as bad as a debt-service-coverage-ratio breach,” says Sommer.
