German firms face deadline

Bloomberg

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Germany’s real estate companies are fighting for survival, with deadlines looming to refinance short-term debt that’s as much as 18 times their market capitalization while the recession erodes asset values.

Loans defined as short-term by the 10 largest publicly traded property companies total 4.2 billion euros ($5.3 billion), according to their most recent financial reports. Patrizia Immobilien, Vivacon and IVG Immobilien alone owe 3.1 billion euros, part of which expires as early as next month.

That’s more than five times the trio’s combined market value, which has shrunk 83 percent in the past year.

"I wouldn’t be surprised if banks pull the plug for some real estate companies in the very near future," said Matthias Schrade, an analyst at GSC Research in Dusseldorf.

Augsburg-based Patrizia and Hypo Real Estate Holding, the commercial property lender bailed out by Germany, are among stocks on Schrade’s "don’t touch" list. Since 2003, 11 of the 91 companies on that list have gone bankrupt and shares of 63 others slumped even as the equity market rose.

Toxic debt from the U.S. subprime mortgage crisis has forced banks around the world to seek bailouts. While Germany said this month that Hypo Real Estate is too important to go bankrupt, none of the top 10 listed property companies is bigger than 700 million euros in market value. The prospect of some of the companies failing is turning investors away, said Matthias Born, a fund manager at Allianz Global Investors in Frankfurt who has sold most real estate shares from his 1.2 billion-euro portfolio.

Seeking bailout

The ratio of debt to assets is one benchmark banks watch closely. A range of up to 60 percent to 65 percent is where "banks would still be willing to give credit," according to Olaf Meisen, a partner who specializes in real estate finance at law firm Allen & Overy in Frankfurt. Seven of the 10 companies have ratios that exceed 65 percent, with Patrizia topping the list with 80 percent, according to Frank Neumann, an analyst at Bankhaus Lampe in Dusseldorf.

General Growth Properties, the U.S. owner of shopping malls that warned last week it may be forced into bankruptcy, is saddled with $1.18 billion in past-due debt.

While most of the bigger U.S. real estate firms have received debt ratings, none of the top 10 German property firms are rated by Moody’s Investors Service or Standard & Poor’s. That doesn’t make it easier for the companies to raise funds, said Torsten Klingner, an analyst at SES Research in Hamburg.

Patrizia, which builds and manages residential property, has 1.3 billion euros in short-term debt, of which 530 million euros are due at the end of March.

Germany’s commercial property market froze in the second half of 2008 as financing dried up, said Tobias Just, a real estate economist at Deutsche Bank in Frankfurt. Prices will probably fall 30 percent this year from 2007, he predicts.