Making Waves: European Banks Exit, Asian Banks Sail On


Last fall, a group of lenders—including debt funds, insurance companies and international banks—competed for the $80 million assignment to refinance Lehman Brothers HoldingsOn The Ave Hotel on New York City’s Upper West Side.

Ultimately, the borrower tapped Singapore-based United Overseas Bank, which in the last two years has been behind several large office loans in New York and hotel loans on the West Coast, but which was essentially a newcomer to the city’s hotel lending scene. UOB inked the deal during the same late November week when Bank of China closed a $465.9 million loan on the iconic Plaza Hotel, after having refinanced the Mandarin Oriental Hotel for $170 million earlier in 2012.

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Zach_Montoya_Eurocrisis2012In the first half of 2012, international banks have become the leading hotel lenders in the United States’ major metropolitan areas—New York, Los Angeles, Chicago, Boston, D.C. and San Francisco. In fact, they accounted for 36 percent of hotel lending in the Northeast, according to data from Real Capital Analytics, a provider of commercial property information.

Trophy hotels have traditionally been appealing for international lenders, which take pride in showing off the beautiful, and oftentimes famous, assets. Once upon a time, though, those lenders were European. Today the makeup of international lenders has shifted, and Asian banks seem to be the ones leading the charge—not just for hotels, but for several other high-quality asset types as well.

“In general, what we’ve seen is that European banks have not been as active this year as they have been historically,” Mathew Comfort, executive vice president and co-head of the Hotel Investment Banking group at Jones Lang LaSalle told The Mortgage Observer. Mr. Comfort led the team representing Lehman Brothers in the On The Ave transaction.

First burned by the U.S. mortgage crisis and then pressured by increasing banking regulations and euro zone woes, European banks have been reducing their investment in the U.S. for several years now. To some extent, Asian lenders are filling the gap. But while this might be true for properties such as iconic hotels and office towers in New York, in other markets the story is less clear-cut, several analysts and commercial real estate players said.

“International banks are focused on trophy assets,” said Dan Fasulo, managing director at Real Capital Analytics, adding that Asian banks are particularly careful about their investments. Asked who will fill the gap left by German or Irish banks, Mr. Fasulo mentioned insurance companies and U.S. banks. He also noted that “CMBS lenders are back again, and even the regional banks.”

In the last two years, between the third quarter of 2010 and the third quarter of 2012, German banks’ outstanding loans held in U.S. branches dropped by 37 percent, to a total of $7.2 billion, according to CMBS and mortgage data provider Trepp. Eurohypo, the real-estate lending unit of Commerzbank (CRZBY), and Westdeutsche Landesbank are among the banks that completely left the market. Irish banks including Anglo Irish Bank, Allied Irish and Bank of Ireland soon followed suit.

“Commerzbank has in place a run-down strategy for its commercial real estate assets,” according to a written statement from Nils Happich, a spokesperson for the bank. The lender’s global portfolio was reduced by 33 percent, from 84 billion euros as of December 31, 2009, to 56 billion euros as of June 30, 2012, and it aims to reduce it by an additional 40 percent by 2016. Just last May, Eurohypo sold loans for $740 million on 14 properties across the United States—including the retail component of the ultra-luxurious condo 15 Central Park West—to Wells Fargo (WFC), Blackstone (BX) and U.S. Bancorp.

“In the United States, our CRE portfolio has already been decreased from 5 billion euros as of December 31, 2009 to 2 billion euros as of June 30, 2012,” Mr. Happich continued in the statement. “We will continue our run-down strategy in the next years.”

Increasing regulations from national governments, the Basel III rules—which will require banks to hold more capital against loans secured on commercial property—and a still precarious euro zone situation have collided to create an uncertain future for European lenders. Four years after Lehman, the U.S. sees “the end of lending crisis,” asserted Mr. Fasulo, “while Europeans still have many innings to go.”