Challenges for investors in German market
Many of the Irish investors who spent €1.3bn buying into the German commercial property market in 2007 are now consolidating or restructuring their investments.
Irish investors in German property are faced with three key challenges: securing rental income in order to cover interest and other costs; generating sufficient cash to prevent a fire-sale of solid German investments and thirdly, protecting against any interest-rate increases.
On the plus side, German banks will lend to investors who have a high-quality property, good tenants and a stable cash-flow.
Some banks will provide a loan to value of up to 75pc, charging a competitive bank margin of around 1pc, if the investment meets their lending criteria.
We arrange funding for acquisitions, refinancing and interest-rate hedging products.
Swaps and Caps case study
A private investor took a €6.5m fixed-rate loan to buy a property. We negotiated a variable rate swap, changing from a variable rate to a fixed rate, and thus significantly reducing the investor's cost of borrowing.
We then negotiated an interest-rate cap, to hedge against an increase in variable interest rates.
A cap is a contract between the customer and the issuer where the issuer agrees to compensate the customer should an interest rate exceed a specific level. As this is an insurance product, the buyer pays the issuer an up-front premium for the protection. Our client now pays the three-month Euribor rate, with a 0.75pc margin and a cap of 5.75pc, with this agreement in place until 2018.
Refinancing case study
An Irish syndicate was coming to the end of its loan term in mid-2011 and wished to extend it on favourable terms. We negotiated with the bank to extend the facility on a fixed-rate interest of around 4pc, out to 2016. As a consequence of the successful refinancing of the loan, the syndicate can distribute some funds to investors. If they hadn't been able to extend the loan facility they would have had to sell out at the end of the current loan term, at a significant loss.
Repatriation case study
A tenant wanted to terminate a lease four years ahead of its term. On behalf of the investor landlord we secured a lump sum from the tenant comparable to rent for the four years. This allowed the client to repatriate cash to Ireland with which they paid down mortgages.
Marco Henke is the Head of Asset Management at Otus Asset Management, a German-based Irish-owned specialist commercial property management company. Prior to joining Otus Asset Management, he managed a number of closed-end property funds in Germany