German Lender With Significant Exposure To U.S. Office To Cut Or Restructure $550M In Loans

Bisnow/Katharine Carlon

A German lender with significant exposure to the U.S. office market said it plans to cut or restructure about $550M of loans to the sector in the next couple of months, having upped the amount it put aside to insure against loan losses.

Aareal Bank said in full-year results Thursday that it planned to reduce its nonperforming loan exposure to the U.S. office market by €500M ($550M) in the first quarter. That could mean selling loans, pushing for sales, getting borrowers to stump up more equity or taking write-offs, it said.

The lender was taken private at the end of last year by a consortium that included private equity firm Advent International, the Canada Pension Plan Investment Board and Goldman Sachs.

Aareal has a €33B CRE loan book, of which about €4B is in the U.S. About €1B of those loans might not be paid in full at maturity, the company said in a media call, Reuters reported.

Some U.S. offices have fallen in value by 50%, CEO Jochen Kloesges said.

The bank made risk provisions, essentially taking a loss upfront on bad loans, of €441M in 2023, more than it forecast. Of that, €193M was in the fourth quarter.

Despite the increased provisions, Aareal said it still made an operating profit of €149M, down from €239M the year before. Although it has problems in the U.S., it said it had increased its overall property loan book from €31B to €33B.

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