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Aareal Bank scales back property lending ambitions
Wednesday, February 22 2012 | 10:34 AM
James Wallace
Finance Editor,
COSTAR | Aareal Bank Group is targeting a global real estate lending haul of between €4.5bn and €5.5bn as the bank looks to scale back commitments from last year’s €8bn tally, reflecting what it calls a “continued volatile and uncertain environment”.
The German pfandbrief-funded bank lent €1.86bn globally in the final quarter of last year, down from the previous quarter’s €2.99bn, with the €8.0bn annual figure – comprised of €3bn in refinancing and €5bn in new business – up from €6.67bn in 2010.
Increasingly Aareal’s real estate lending is new business over refinancing, with the proportion of renewals down from 60% in 2010 to 38% last year. Over 2011, new business rose by 89% year on year.
This year, Aareal has warned that a combination of a deteriorating economic outlook, the uncertain cumulative effects of differing banking reforms on the real economy as well as a broader uncertain political and regulatory framework has prompted its increased cautious outlook.
Aareal added that there was increased pressure on real estate values, along with volatility and risks in the financial system which mean “further market distortions cannot be ruled out”.
A statement continued: “Aareal Bank will counter these uncertainties, amongst other things, by pursuing a very cautious liquidity and investment strategy. This strategy will lead to a burden on net interest income that will more than offset the positive effect of higher margins on new business originated last year. On these assumptions, Aareal Bank expects a considerable decline in net interest income over the year.”
Dr Wolf Schumacher, chief executive officer at Aareal Bank, said: “We are cautious business people who have to take into account the deterioration of the economic framework during the current year. Nevertheless, our great flexibility allows us to react at all times to changes in the environment and to take advantages of available opportunities.”
Aareal continues to forecast allowance for credit losses in a range of €110m to €140m, unchanged from last year.
Of the European markets which Aareal Bank is exposed to, the lender believes the countries where property values will come under greatest pressure this year are: Belgium, Czech Republic, France, Italy, Netherlands and Spain.
Last year, new interest income rose by 8.8% over 2011 to €50m, taking Aareal’s operating profit to €165m – a 52.8% rise from 2010’s €108m.
Last year’s lending levels have increased Aareal’s overall global real estate loan book by €1.1bn to €24.2bn, of which €20.09bn, or 83%, is weighted towards Europe. The balance of the real estate book is €3.39bn, or 14%, US exposure and €72.6m, or 2%, Asian. Inclive of the aggregate global real estate loan book is €200m in real estate loans which Aareal Bank manages on behalf of Deutsche Pfandbriefbank.
The LTV profile of the loan book comprised 87% of loans at an ratio of under 60%, while a further 10 percentage point of the €24.2bn global loan book between 60% and 80% LTV, with the balance, just 3%, above 80%.
The non-performing element of the loan book comprises €184m of Italian loans, at an average LTV of 59.5%, and €65m of Spanish loans at 82.1% LTV, on average.
Among the bank’s new lending last year three high profile deals: a £350m partial refinance of British Land and Schroders’ joint venture £1.6bn Hercules Unit Trust (HUT), to prepay part of the maturing securitised debt. CoStar News understands that this has been in part retained and in part syndicated.
Aareal Bank also provided €130m to finance a 17-strong German logistics portfolio for ProLogis €3bn European Properties Fund II and taking on Morgan Stanley’s a €195m senior positions in a wider €210m financing package, secured by Beacon Capital Partners and Northwood Investors’ joint venture’s refinancing of the 14-storey Défense Plaza office building in Paris.
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