While investor fears during the real estate crisis have centred on landlords, it’s the developers that are the ones in imminent danger.
In July, Nuremberg’s mayor celebrated the final beam being placed atop the redeveloped Quelle building, a monumental 1950s symbol of postwar Germany’s economic revival. Revamped with offices, shops and homes, a big part of the giant complex was slated to open next year.
“Project developers are struggling with the increased construction costs, increased interest rates and the drop in prices,” says Marlies Raschke, co-head of restructuring and insolvency at law firm Noerr. “We’ve seen several of them filing for insolvency in the last weeks and we expect more.” The mood is very different now. German real estate transactions for offices are at their lowest point on a 12-month rolling basis since at least 2014, according to property firm Savills.Tower cranes at the Quelle building.“The recession in the German real estate market started one-and-a-half years ago and now in the last two to three months we’ve seen more and more developers go bust.”
In one example, Aggregate Holdings SA, the diminished real estate empire run by Cevdet Caner, had to hand over the keys of Berlin’s QH Track project to creditor Oaktree Capital Management. Hit by cost overruns, it tried to negotiate with lenders to fund the project through to completion but the talks failed.Germany’s development boom was fuelled in part by mezzanine lenders including Corestate Capital who were willing to make chunky loans to developers with little equity.
“The owners want to realise their projects without consideration of Gerch Group’s insolvency,” the mayor’s office says in a statement. “On the city’s side, we support by continuing all planning and administrative processes.”and smaller pension funds, who piled into real estate during the boom times, adds another awkward political dimension. Their involvement can make negotiations complicated, especially if new money’s needed.
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