The commercial real estate market is keeping banks on edge. Recently, it was primarily the downfall of retail tycoon René Benko that made investors scrutinize retail properties critically due to the Signa bankruptcy. Now, it is the office real estate market that is worrying investors and regulators in the commercial real estate (CRE) sector.

As was the case around a year ago during the regional bank crisis, the trigger this time again originates in the US. In early February, losses at New York Community Bancorp raised fears of a new crisis among US banks with implications for German institutions. To shed light on the US exposure of German banks, Börsen-Zeitung surveyed several German financial institutions, most of which responded by the editorial deadline.

Deutsche Pfandbriefbank (PBB) states that its total commercial real estate exposure amounts to 32.1 billion euros at the end of September. The USA accounts for 4.9 billion of this, which corresponds to around 15%. This makes the USA the Pfandbriefbank's second-largest market for commercial property financing in terms of exposure after Germany (44%) and ahead of France (13%).

In terms of property types, PBB mainly finances offices (51% of the exposure), followed by residential (17%), logistics (15%), and retail properties (10%). Hotels play a minor role, accounting for 3%. 89% of the loans are for existing properties, with only 11% for project financing. The bank estimates the proportion of non-performing loans in CRE financing to be 2.7%. In the US, it is significantly higher at 14.1%.

Aareal Bank reported its CRE exposure at 32.4 billion euros at the end of September 2023. The Wiesbaden-based real estate financier focuses primarily on foreign markets, with less than 10% of its CRE financing conducted in Germany. Its exposure in the US amounted to 8.6 billion euros, with no other country having higher risk positions.

US exposure accounts for 31% of the total portfolio. Aareal Bank finances offices, hotels, shopping centers, logistics and residential properties, as well as alternative living properties. Most loans are for existing properties, with project financing almost non-existent (less than 1%). The average loan-to-value ratio was 56%. The non-performing loan (NPL) ratio in commercial real estate financing was recently at 3.3%. In the US, it was significantly higher at 9.5%. The bank does not break down the risk provisions by individual countries. Overall, in the commercial real estate sector, it amounted to 316 million euros.

The Munich Hyp had a CRE exposure of 15.5 billion euros at the end of 2023, with 900 million euros in the US, representing 1.7% of the total exposure. As the bank started to restructure its US portfolio a few years ago, around 40% of its US portfolio consists currently of residential property financing. All loans are for existing properties, with no project development financing.

The commercial real estate financing of the cooperative DZ Bank is handled by DZ Hyp. According to a spokesperson, the bank does not have any financing in its portfolio that is secured by real estate located in the US. Therefore, there are no write-offs related to the US real estate market. The core market for DZ Hyp is Germany. Additionally, the bank assists German clients in France, Great Britain, Austria, and the Netherlands.

Based on an analyst presentation as of November 2023, Commerzbank has a Commercial Real Estate Exposure of 9.2 billion euros. Over 99% of the financed properties are located in Germany. The majority of these loans (5.5 billion euros) are in so-called A-locations, referring to the seven most attractive and liquid real estate cities in Germany. A Commerzbank spokesperson stated that they do not have exposure to US commercial real estate. The majority of their exposure is in offices (3.5 billion euros), followed by residential properties (3.1 billion euros). Logistic properties had impairments of 200 million euros.

The Hamburg Commercial Bank has a total of 8 billion euros in commercial real estate financing, which represents 37% of the total loan portfolio. Only 4% of the CRE exposure is in the US, equivalent to 320 million euros. Offices make up the largest part of the overall portfolio at 38%, followed by retail properties at 22%, and residential properties at 15%. Project financing accounts for 16% of the CRE book. The average loan-to-value ratio for existing properties is 59% and for development financing 61%. The non-performing loan ratio in CRE financing was 3.1%. Risk provisions amounted to 41 million euros, with none made for the US, as emphasized by the bank.

Unlike Commerzbank, Deutsche Bank has open risk positions in US commercial real estate. According to the survey, Deutsche Bank has an exposure of 38 billion euros in commercial real estate financing, of which 31 billion euros are considered higher risk. The bank's US exposure is estimated at 17 billion euros, with offices accounting for 43% of that figure. A significant portion of the 7 billion euros US office exposure pertains to New York (29%) and San Francisco (15%) – the currently most critically viewed US office locations. Nevertheless, US office loans only make up 1.5% of the total loan book, which is 479 billion euros.

The bank did not provide information on the proportion of non-performing loans in US commercial real estate financing. Likewise, there was no information on the type of financing. Overall, in the past year, the bank has set aside 388 million euros in risk provisions for commercial real estate financing, with 77% allocated to the US. Offices accounted for 70% of the provisions.

The Helaba Real Estate Finance portfolio totals 38.4 billion euros, with 27% allocated to North America, making it the second-largest market for Helaba after Germany (39%). The US portfolio totals 10.3 billion euros, with 37% allocated to office buildings and 51% to residential properties. As per a spokesperson, commercial real estate in North America accounts for only about 4% of Helaba's total loan book.

Berlin Hyp, a subsidiary of LBBW, reportedly has no exposure to the American market, focusing instead on Germany, France, Poland, and the Netherlands. The LBBW Group reports a Commercial Real Estate Exposure of 5.8 billion euros for North America (including Canada), which represents around 8% of the total exposure of 72 billion euros.

According to a spokesperson, Nord/LB has no engagement in commercial real estate financing in the US. The combined CRE exposure recently totaled 17.4 billion euros, with Germany accounting for 57%, followed by the Benelux countries at 23%, the UK at 7%, France at 6%, and Spain at 1%. Commercial real estate financing accounts for about one-fifth of the bank's total exposure of 89.2 billion euros.

The focus is on office and retail segments, multi-family residential buildings, hotels, and logistics. Project developments are almost exclusively in Germany and traditionally account for about 15% of the annual new business volume. However, the bank is currently more cautious in this area.

The bank recently reported a non-performing CRE loan ratio of 1.2%. By the end of the third quarter, the bank had set aside 69 million euros in provisions for CRE exposure. According to a spokesperson, further provisions were made in the fourth quarter, taking market conditions into account. The bank also has management adjustments amounting to 300 million euros for potential loan defaults.

According to a spokesperson, BayernLB has a CRE exposure of 2.7 billion dollars in the USA, which corresponds to around 2.5 billion euros. 45% of this is attributable to the office asset class, 44% to the residential sector. Most of the US office exposure is in Washington (32%), followed by New York (26%). The total exposure in commercial property financing recently amounted to EUR 67 billion.

In a recent investor presentation, BayernLB writes that there has been a sharp increase in problem loans since the beginning of 2023. Five loans for office properties with a volume of USD 340 million were classified as problem loans. The risk provision for these loans amounts to 106.2 million dollars.

Deka is also active in commercial real estate financing in the US but was more reserved in response to inquiries than other banks. The gross volume of commercial real estate financing in the US amounted to 2.6 billion euros at the end of September. The bank follows a conservative financing approach, only financing existing properties in very good locations with moderate loan-to-value ratios, typically between 50 and 55% at the time of disbursement.

The survey shows that not every German bank active in commercial real estate financing is directly affected by the US crisis. Banking advisor Thomas Schnarr from the consulting firm Oliver Wyman also warns against generalizing all banks. "I often miss differentiation in the current debate", says Schnarr. According to him, commercial real estate is not a single asset class but encompasses various sectors that behave differently.

Within these sectors, the location is also a crucial factor. "As of now, considering the data, I don't perceive any systemic risk", states Schnarr. Nonetheless, he acknowledges that the bankruptcies of US regional banks about a year ago demonstrated how quickly markets can switch to panic mode.