Since Germany started letting its mortgage banks invest in U.S. assets, those banks have made more of a ripple than a splash.
Now Hypothekenbank in Essen AG is stepping it up. It has opened a New York office and plans to originate U.S. commercial mortgages.
In early 2002, Germany gave its mortgage banks (hypothekenbanken in German) clearance to invest in U.S. assets, a privilege that had long been available to commercial banks, which sometimes own the mortgage lenders as part of their business.
Since then Essen Hyp, as it is widely known, has been limited to pieces of other lenders’ syndications.
Commerzbank AG has owned most of Essen Hyp, a leading issuer of Germany’s covered mortgage bonds, since the mid-1990s.
Essen Hyp expects it will be easy to syndicate larger loans to its fellow German mortgage banks, said Harald Pohl, a managing director.
Most of its peers “don’t have the manpower to enter the United States but are eager to buy the risk” of U.S. commercial real estate, he said.
Through syndications, Essen Hyp has accumulated about $370 million of U.S. commercial mortgage debt on its balance sheet, from about 15 deals.
Through the new origination channel and continued syndication purchases, it wants to add about $400 million a year, Mr. Pohl said.
Though the entrance of a well-funded player may spark some fears of aggressive bidding, Essen Hyp’s near-term business goals are modest, given the size of the commercial mortgage market.
Another executive at the bank said there are no quotas, no pressure to build volume for volume’s sake.
Unless the right deals come along, “we have permission to sit on the bench,” said Jean Barden, the office’s general manager, in an interview Monday.
Ms. Barden said the new office is in place but probably would not conduct business until next month, after two more staff members are hired. The Federal Reserve and New York State on Friday gave Essen Hyp approval to open the office, which will send loans to Germany to be booked and serviced.
Ms. Barden conceded that tight spreads make this a tough time to ramp up — and have even driven many first-mortgage lenders to make mezzanine loans.
But she said opportunities do exist.
“I think there will be something that happens that rights the pricing,” she added.
Ms. Barden cut her teeth at Chemical Bank and what eventually became Capital Trust Inc., which was started by some of Chemical’s former team. She most recently was a managing director of real estate at PB Capital Corp.
Ms. Barden said Essen Hyp seeks to acquire debt on only those buildings with “class A cash flows” — but this does not mean it limits itself to central business districts, any other geographic restrictions, or property age.
Because of demographic trends, it emphasizes retail and multifamily properties.
Essen Hyp avoids hotel loans because they resemble lending to “operating companies,” Ms. Barden said.
In contrast to those in Europe, U.S. hotel loans are not backed by corporate parents, Mr. Pohl said.
Commerzbank also owns a stake in Eurohypo AG, a joint venture with Deutsche Bank AG and Dresdner Bank AG, which is ramping up a conduit lending business based in New York.
Last year, Eurohypo funded about $4 billion through its syndicated loan business. Deutsche and Commerzbank also run U.S. real estate units.
