European property lender Eurohypo will be wound down following a revised ruling by the European Commission. According to an announcement by the lender and its parent Commerzbank, the assets of the bank are to be separated into three divisions: two non-core platforms comprising public finance and most of its commercial property exposures; and one core but “scaled down” commercial property lending platform taking in Germany, the UK, France and Poland. It previously lent in 29 markets.
The two non-core divisions will be regrouped into a platform called Non Core Assets for now. The reduced but active commercial real estate division, meanwhile, will be part of a new division within Commerzbank called Real Estate and Ship Finance, which will be active in July. The bank said, “The Eurohypo brand has to be given up.”
The shift in strategy is part of a wider plan to reduce the portfolio of Commerzbank to a maximum of €600 billion by the end of the year. In addition, the bank has been imposed a ban on making acquisitions until the end of the first quarter in 2014. The necessity to sell assets and reduce its various exposures formed part of the bank’s agreement with the EU Commission after it received bailout funds during the start of the credit crunch.
For Eurohypo, today’s conditions represent something of a switch from the lender’s previous plans to sell down much of its €67 billion loan book. While some sales have happened, including to private equity real estate firms, the sheer heft of the bank has made a rapid unloading of assets difficult. Indeed, Commerzbank said the “portfolio volume” of its commercial real estate had only been reduced by 20 percent between 2008 and 2011.
In the announcement, Martin Blessing, chairman at Commerzbank, described the measures imposed by the EU Commission as “challenging but acceptable.” He added: “The objective is that of continuing a small, lower-risk area of the commercial real estate business in Commerzbank.”
In terms of its active commercial real estate business going forward, the bank may not exceed €25 billion of assets and may not exceed lending of more than €5 billion per year until 2015. Thomas Kontgen, chairman of Eurohypo, who will take charge of the real estate component of Commerzbank’s incoming Real Estate and Ship Finance unit, said: “There will always be a need for commercial real estate financing. We are therefore pleased to be able to continue to offer this product. We will, however, run this business in the future so that it is much more focused and the risks are lower.”
The troubles of Eurohypo and numerous other European lenders has presented something of a window of opportunity for private equity real estate platforms to come in and bridge the resulting financing gap.
Yesterday, PERE reported on plans by Goldman Sachs’ Real Estate Principal Investment Area to introduce a $3 billion real estate debt fund before the end of the year. That fund is expected to be deployed 50:50 between Europe and the US and can both originate and acquire loans.