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.

In recent weeks, however, the site’s developer, Gerch Group, which has €4 billion ($6.6 billion) of projects under construction, has filed for insolvency proceedings, along with one of its project companies linked to the development. The opening date is now in doubt.

It is yet another blow to a property market reeling from the end of the cheap-money era, but it also shows who is most vulnerable to the shakeout. While investor fears during the current real estate crisis have centred on landlords, the travails of Gerch and its ilk show that developers – the firms that own the building projects – are the ones in imminent danger.

“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.”

Alongside Gerch, Munich’s Euroboden, which touts star architects such as David Chipperfield among its collaborators, is in preliminary insolvency proceedings. Project Immobilien Group filed for insolvency in August along with many of its project companies, and some of the work is being tendered for new contractors, a spokesperson for the preliminary administrator says. The three firms did not respond to requests for comment.

The post The German Property Crisis Claims Its First Big Victims appeared first on Amora Escapes.

The one-two punch for the developer, Stefan Hoeglmaier, and his company, Euroboden, mirror the travails of the broader property sector across Europe’s largest economy as it suffers its worst slump in decades.

For years, low interest rates fueled a global boom, igniting interest in German property, seen as safe and stable as the country.

A sharp rise in rates, and soaring energy and building costs, put an end to the run. That has tipped a string of developers into insolvency and frozen deals, and pushed prices down, prompting the industry to appeal to Chancellor Olaf Scholz for help.

“We’re heading for the wall at breakneck speed. The first developers have fallen and more will follow,” said Tillmann Peeters, an insolvency lawyer with FalkenSteg.

Developers’ fortunes, including those of Euroboden, changed in 2022 when the European Central Bank began to increase rates, making it harder for to borrow and to find buyers for projects.

A statement from Euroboden management said the market environment for the company had “deteriorated quite considerably.”

The health of Germany’s property sector — Europe’s biggest property investment market outside of Britain — is critical, making up roughly a fifth of output and providing one in 10 jobs. New building during the first half of the year nearly halved from the past two years.

In 2010, in the early days of a years-long boom, Hoeglmaier bought a dilapidated above-ground bunker in a posh Munich neighborhood from the government to convert it into luxury apartments.

He and his partner, Oscar Loya — a Eurovision Song Contest star — took for themselves the three-floor penthouse, complete with music room and gold-leaf walls in the toilet.

During the decade that followed, Euroboden completed projects with renowned architects, generated tens of millions of euros in profit, raised millions from investors, and expanded to Berlin and beyond.

The penthouse made the cover of Germany’s Architectural Digest, and the couple hosted “bunker acoustic sessions,” with video clips posted to Loya’s Facebook page.

Loya, who owns stakes in two Euroboden subsidiaries, also serenaded staff at the company’s 20-year anniversary party in 2019.

The site of a project planned by Euroboden, a property developer that has filed for insolvency, in Munich, Germany | REUTERS

The property boom came to an abrupt end last year when the speed of interest rate increases caught many in the sector off guard.

Euroboden issued a profit warning in October. Late last year, Hoeglmaier put his penthouse on the market, and Euroboden closed its Frankfurt office.

In late July, Euroboden called a meeting to ask investors to restructure €92 million ($100 million) in outstanding bonds, but after they balked at the new conditions, the company cancelled the meeting days later and filed for insolvency.

“It was relatively clear that bondholders would not accept the proposal,” said Daniel Bauer, chief of the SdK association of capital investors that is representing nearly 800 Euroboden investors with €11 million in bonds.

The person overseeing the insolvency, Oliver Schartl, said that the case was relatively complex and in an early phase.

Throughout, Euroboden has blamed the pandemic, the war in Ukraine, inflation and interest rates — the same toxic mix that has inflicted pain on the entire industry.

Hoeglmaier declined to be interviewed for this story saying he needed privacy to focus on business, while Loya did not respond to requests for comment.

Euroboden is not an isolated case. Several other German property developers filed for insolvency in recent months.

Duesseldorf-based Gerch, with €4 billion of projects, is Germany’s biggest casualty so far.

Property professionals fear the downturn in Germany could prove deeper than the 1990s crash following the dash for property in eastern Germany after the fall of the Berlin wall.

“The rise in building costs, shift away from office working and rising interest rates mean we’ll see many more developers run out of steam,” said Christoph Niering, who chairs the umbrella body for insolvency administrators, VID.

“Most people did not see this crisis coming. It is now surprising how quickly it is unfolding.”

Lenders too were slow to respond.

In 2020, as the property market heated up, the Bundesbank warned the country’s banks, for whom property accounted for about 70% of all domestic loans, of the risks. In August, it warned again that property remained overvalued, despite recent falls, expressing hope, however, that low unemployment meant most borrowers could keep up loan repayments.

Germany and Sweden are the hardest hit on continental Europe by a global property rout that has sucked in homebuilders in China, from Evergrande to Country Garden.

Hoeglmaier’s bunker was originally erected in the early 1940s to shield residents from allied bombs. After the war, nearby grounds served as camps for imprisoned Nazis and then refugees, and local hairdressers and hotels sought permission to post their ads on its bullet-pocked facade.

Since 2005, Germany has sold some 320 bunkers.

The 380-square meter (4,090 square foot) penthouse, which occupies the fifth through seventh floors and includes a rooftop terrace, originally listed for just under €13 million. The price dropped to €11 million earlier this year, but it is still one of the most expensive apartments in Germany.

“If interested,” the listing reads “some of the furniture and lamps can be purchased.”

Source : TheJapanTimes

The post Market Flop: How Germany’s Property Boom Ended appeared first on Amora Escapes.

The work from home trend has impacted real estate around the world, and in some places, up to 50% of office space is lying dormant. Central London, for example, has 31 million square feet of empty work space, the equivalent of 60 Gherkin skyscrapers. Last year, the vacancy rate for office real estate in Munich, Germany, rose for the fourth year in a row.

The good news is that investors are seeing a plethora of creative opportunities for preventing downtowns from becoming ghost towns.

The purpose is to repurpose

“Using obsolete office space for other functions such as apartments or small-scale commercial purposes eliminates the need to use raw materials to build a new building,” said Nikolaus Schmidt, global head of technology and innovation at Commerz Real, a global leader in investment and asset management services in the real estate, infrastructure, and renewable energy sectors.

Speaking at the recent SAP and SAP Fioneer Financial Services Forum Europe in Frankfurt, Germany, Schmidt went on to explain that retrofitting an empty space into a useful area aligns with the principles of the circular economy, a concept often symbolized by the infinity symbol to indicate that materials and products should be used again and again to provide continuous value.

“Breaking down a building to build something new is just about the worst thing you can do,” said Schmidt. “Transformation starts with the investment itself. In the past, clients only cared about the return on the investment. That is changing. Now, the investment should also be generating something good in the end.”

Schmidt cited the example of Commerz Real’s project to rebuild the Tucher Park in Munich, one of the company’s assets in its hausInvest open-ended real estate fund, one of the largest in Europe.

The mixed-use property, in the world-famous English Garden, consists of 10 properties in an area of 127,000 square meters. The park, developed mostly in the 60s and 80s, comprises seven office buildings, a 10,800 square meter computer center, a sports facility, a 5-star Hilton Hotel, and 1,500 parking spaces.

The company’s vision is to make Tucher Park a role model for sustainable redevelopment. “This is a place where people can work, live and spend their free time,” said Schmidt. “The idea is to create a circular city, incorporating the past into the future while respecting the needs of the inhabitants and nature.”

One third of the space will be transformed into affordable housing for rent, one third will become refurbished energy-efficient office space, and the rest will be converted for commercial purposes and sports and leisure facilities. Existing green spaces and trees will be maintained, and renewable energy will be generated onsite.

“There is a large data center on the property that’s being rebuilt, and the heat it produces will be used to heat the buildings,” Schmidt explained. “ We are also installing a new water treatment plant.”

The Commerz Real team is constantly thinking of ways to get full usage out of every element on a property. There is a huge focus on renewable materials, from wood to metal or concrete. The company is working with the city of Munich to embed circular concepts into new projects. The approach favored by Commerz Real is to tackle urban renovation block by block to shape a diverse mix for housing, work, community use, and green space.

According to Schmidt, from an investment perspective, that’s not a simple endeavor, because you have to look for areas where you can buy the whole quarter. Blocks are not owned by one person, but maybe hundreds of people who may each have their own house or apartment: “That’s why Tucher Park is so interesting for us; we were able to buy the whole place and renovate in one go,” he explained.

Collaborating for circularity

Setting up and keeping such huge projects on track requires a special kind of collaboration. While people are expecting renewable energy sources to power the future, they often are not aware of the enormous effort and cost of making it happen.

Schmidt pointed out that achieving 107 GW, the sum total of all the EU nations’ individual offshore energy targets for 2030, would require enough offshore wind parks to compensate for around 500 nuclear power plants. To say that greater regional collaboration is needed for meeting these targets is putting it mildly.

“We’re not building the necessary infrastructure by ourselves,” he said. Commerz Real is working with several developers across various nations and sourcing the money from a variety of B2C or B2B funds and institutional financing. “From the political and organizational perspective, we need to overcome the ‘not invented here’ syndrome and get better at collaborating, keeping an open mind, and joining forces to meet common goals across regions.”

For Schmidt, the new mindset starts right in his own department which is responsible for digitalizing Commerz Real. The company’s business transformation was achieved with SAP S/4HANA, SAP Business Technology Platform (SAP BTP), and the RISE with SAP offering, which is comprised of tailor-made ERP software, transformation services, business analytics, and partner expertise to help companies transition smoothly to the cloud.

“Our vision is not to be tech-driven, but to be powered by technology,” said Schmidt. “We are not SAP-centric, we are data-centric, running on SAP to best leverage our data and analytical capabilities. For us, technology is the foundation for delivering our wide range of business services, to ultimately make the world a better place.”

Source : Forbes

The post Commerz Real Is Creating A New Urban Reality With Circular Real Estate Projects appeared first on Amora Escapes.