Making Waves: European Banks Exit, Asian Banks Sail On
By Alessia Pirolo January 11, 2013 12:08 pm
reprintsHowever, there are some exceptions. The most obvious is German giant Deutsche Bank (DB), which has a significant CMBS program and, according to Real Capital Analytics, was involved in sales and refinancings totaling $11.6 billion in 2012, up from about $5.4 billion in 2011. The $300 million refinancing of Extell Development’s International Gem Tower and a $250 million acquisition loan on the office building Bank of America Plaza at 540 West Madison in Chicago are just a couple of the bank’s latest deals.
Some much smaller players such as Germany’s Helaba, Aareal Bank (ARL) and DekaBank have been active as well.
DekaBank, “in Frankfurt, is primarily a fund manager,” explained David McNeill, the head of Deka’s New York branch. He added that its lending portfolio of about 7 billion euros overall and $3 billion in North America is relatively small. “We cover New York, Boston, D.C., L.A., San Francisco and Seattle,” Mr. McNeill said. “Because we are small, we are very focused and targeted, using typically the highest-quality sponsors. Our product types are offices, primarily, and retail and hospitality.”
Last fall, Deka jointly funded a $364 million loan with HSBC on 1411 Broadway for Ivanhoe Cambridge. “We try to do between $500 million and $1 billion in gross origination, before syndication,” Mr. McNeill said. “We are not looking to materially grow our real estate portfolio. We are looking to maintain it and grow slightly.”
Asian lenders share a strategy that’s focused on specific assets. “German and Irish banks were all over the place—they financed a lot of different properties,” said Andrew Jagoda, co-chair of the New York real estate department at law firm Katten Muchin Rosenman, who works with many international clients. Not so Asian lenders. “They are very, very carefully making selective loans.”
Even though the activity of Asian lenders in the U.S. has been increasing, it’s still not at the level of the Europeans. Between the third quarter of 2010 and the third quarter of 2012, banks from China and Hong Kong increased their outstanding loans held in U.S. branches by 92.7 percent, while banks from Singapore increased them by 90.4 percent, according to Trepp. In two years, there has been a $3 billion increase for China and Hong Kong banks and a $700 million increase for Singaporean banks. But when totaled, these increases don’t reach even half of the $7.2 billion decrease in outstanding loans for German banks over that same time frame. At the end of the third quarter of 2012, German banks’ outstanding loans in the U.S. were $12.2 billion. At that time, the outstanding loans by Chinese banks in the U.S. totaled $6.1 billion.
Riaz Cassum, a senior managing director of HFF who is responsible for the group’s Global Capital Initiative, is among those who forecasts greater activity for Asian banks down the road. “We expect them to be more active,” he said, though he was quick to point out that, for now, “Bank of China (BACHF) is particularly focused on Manhattan high-quality office towers with long-term loans, not across the U.S.”
Last spring, Bank of China obtained the Federal Reserve’s approval to set up a branch in Chicago, which could theoretically lead to an expansion of its focus, said Jones Lang LaSalle’s Mr. Comfort. There is also room for other players. “Some government-owned Chinese banks have started to look around,” he said. Mr. Cassum foresees Asian insurance companies being future newcomers in the lending market. “Korean insurance companies are looking to do more lending,” he said. “The regulations in China don’t allow insurance companies to make real estate loans outside the country,” but, he said, this is likely to change in the next two to four years.
“You’ll see Asian banks becoming bigger, especially Chinese,” said RCA’s Mr. Fasulo. However, he warned against overestimating the impact of small German banks leaving. “We don’t feel the impact,” he said. “CMBS will continue to grow, as well as a crowd of other lenders, like debt funds.”
While on a visit to the offices of a German bank in Hamburg, Mr. Fasulo was struck by how the lobby’s walls were covered with postcards of the famous U.S. buildings for which the lender had provided loans. So now he thinks of the trophy hotels and office towers chased by international banks as “postcard assets.”
“European banks can’t go away for ever,” Mr. Fasulo asserted. With a U.S. market that remains the world’s strongest for commercial real estate, Mr. Fasulo thinks that the appetite for these “postcard assets” will keep European lenders in the mix—to keep their literal and figurative lobby walls covered in these postcards.
apirolo@observer.com
