German property lender sees weakness in U.S. commercial real estate

Aareal Bank AG

21/06/2023 11:00

FRANKFURT, June 21 (Reuters) - A German bank that
finances property worldwide is bracing for a possible hit from
the U.S. office market this year as it looks for "solutions"
with clients to keep loans from souring, its chief executive
said.
    Banks and regulators around the world have identified 
commercial real estate as a weak link in global finance, with
low occupancy rates after the pandemic and a surge in interest
rates pressuring the sector.
    Jochen Kloesges, CEO of German bank Aareal  ARLG.DE , said
the U.S. office market was challenging, though it should be seen
in shades of grey rather than black-and-white. 
    "The U.S. is dark grey. You have to be honest about it," he
told journalists on Tuesday evening.
    Aareal has a U.S. office loan portfolio of around 3.9
billion euros ($4.26 billion) across some 50 transactions.
Around 4% of the portfolio is so-called Stage 3 loans that are
at risk. 
    "It's clear that individual cases can hit us in this
portfolio this year. This can result in risk provisions here and
there that are perhaps somewhat higher, or also considerably
higher, than we originally anticipated," he said.
    The bank has previously expected allowances for possible
loan losses this year of between 170 million euros and 210
million euros, but it has said it is comfortable if it exceeds
that level because it is generating healthy interest income.
    Aareal has been working with customers over the past year to
deal with the sector's weakness, Kloesges said.
    "It is not our goal to make customers sweat. We try to find
solutions together," he said.
     Aareal will still meet its targets for the year, and the
other property sectors it finances, including hotels, retail and
student housing, are going strong, the CEO said.

($1 = 0.9157 euros)

 (Reporting by Tom Sims; Editing by Sharon Singleton)
 ((Tom.Sims@thomsonreuters.com; +49 30 220 133 645;))