As Deutsche Bank moves in on one of Donald Trump's lenders, another German bank is financing what may be the New York mogul's most ambitious project to date.
The name might not be widely recognized here, but for the last decade Hypobank-which merged with Vereinsbank to form HypoVereinsbank in September-has been a major force in U.S. real estate, providing $10 billion of financing for high-profile properties in New York City and around the United States.
In the process, it has quietly built a reputation as an old-fashioned banker focused on relationships during a time when some of the largest American banks have shunned traditional real estate lending and Wall Street firms, never known for being touchy-feely, have come to dominate the sector.
Hypo is "a relationship bank, not just a number-crunching bank," said developer Daniel Brodsky, who has worked with it on several deals. It is "interested in the relationships and the people as well as the deal."
Hypo worked out the terms of its $295 million construction loan to build Trump World Tower, the world's largest apartment house, before the late August crisis in Russia shook the world's financial markets. When the loan was closed last month, the bank "stood by the term sheet they issued in the spring, which was quite remarkable," said Abe Wallach, executive vice president at the Trump Organization. It "didn't make any last-minute changes."
Peter Hannigan, managing director at HypoVereinsbank, said the bank had "a moral commitment" to stand by its original terms. "Would we have liked to get another 25 basis points? Yes, we would have."
Mr. Brodsky described a similar experience with a deal closed last week for a 209-unit apartment house in New York's Battery Park City. HypoVereinsBank provided a letter of credit for $38 million of tax-free bonds that will finance the building, 20% of which will be subsidized for middle-income tenants.
Again, the bank stood by the term sheet it had signed over the summer. It "could have looked for ways out of the deal," Mr. Brodsky said. But the Hypo bankers "stayed with what they said and did not renegotiate anything."
Such behavior stands in contrast to that of the Wall Street investment banks, which acted as conduits, originating long-term commercial mortgages, amassing them on their balance sheets, and selling them as securities in the capital markets.
In September, when bond investors suddenly grew risk-averse, the conduits could no longer sell their inventory profitably, and so stopped lending and, in some cases, reneged on earlier commitments.
The plans for the Trump World Tower condominium, like the man behind them, are nothing if not bold. At 90 stories, it will dwarf the United Nations building nearby. With a gold facade, 20-foot-high ceilings on the top floors, and a posh restaurant, it is aimed at very high-end buyers: foreign investors and diplomats.
Mr. Trump intends to sell out the entire project during construction. But will it sell in this market, when Wall Street firms are announcing layoffs and people worry about the economy?
"People with large sums of money don't feel the same pinch as the middle-class," said Henry Beck, a real estate broker at Corcoran Group in Manhattan. "Trump has a certain allure, more for foreigners than New Yorkers."
According to Mr. Wallach, 25 of the 376 units have already been sold. Demolition of the building now on the site is under way.
Mr. Trump and his partner, Daewoo of South Korea, are putting only $70 million of their own money into the project. Ultimately, Hypo is relying on Deutsche Bank, which has committed to provide the permanent loan, or "take- out," if Mr. Trump cannot sell the condos or if something goes wrong during construction.
Deutsche, like many others, has taken losses in the emerging markets and is undergoing upheaval. Standard & Poor's, the credit rating agency, downgraded the bank to double-A from triple-A, its highest standard of creditworthiness.
Last week, Deutsche restructured its commercial real estate operation and dismissed its two top real estate executives in the U.S. The newsletter Commercial Mortgage Alert reported that Deutsche plans to deemphasize investments that would be held to maturity on its balance sheet, and will shy away from the high-end of the fixed-rate loan market.
Deutsche real estate officials did not return calls seeking comment for this article by press time. Monday morning, Deutsche acknowledged it was in talks to buy Bankers Trust.
"We feel comfortable," Mr. Hannigan of Hypo said. "This is a binding legal commitment." Kevin Hackett, an attorney at Shearman & Sterling who represented Hypo on the Trump loan, said the contract is binding and subject "only to property-specific conditions that are typical and fully accepted in the real estate marketplace."
HypoVereinsbank has seen its share of turbulence too, though it has apparently been confined to Europe. Losses in the old Hypobank's real estate portfolio in Germany led to a public feud between the former chairmen of the two banks and a senior management shakeup.
In addition, Reiner Fuellmich, a lawyer in Goettingen, Germany, has accused Hypo and several other German banks of participating in schemes to sell apartments at inflated values to more than 2,000 of his clients.
Andreas Veith, the head of the New York real estate group who reports directly to the board in Germany, dismissed these cases as typical in a country with high tax rates such as Germany. People make investments in an attempt to reduce their taxable incomes, but often find things do not turn out as planned.
"This happened this year, it happened 15 years ago, and 30 years ago. You always try to pick the biggest institutions, especially two banks that have merged. It's always nice for the press and for lawyers."
Mr. Veith, who, like Mr. Hannigan, comes from the Hypobank side of the marriage, said that the merger and the controversies in Munich, where the two banks were headquartered, have not affected his team's business.
While acknowledging that the former Vereinsbank has "a stronger foothold" in Germany, he said, "we don't feel we are being limited in our business activities. We do exactly the same business as we did before."
His customers have noticed little change, if any. "Andy has spent his time insulating his customers from all of that," Mr. Brodsky said.
Hypobank forged its prized relationships by coming onto the scene at the trough of the last real estate cycle. "They were there for us in the early 1990s when no one else was lending," said Jeff Blau, executive vice president at the Related Companies, a Manhattan developer, who calls Hypo "our lead bank."
"A German bank coming into this country 10 years ago would have never developed the relationships that we've developed had it not been that Chase (Manhattan Corp.) and Citibank and everybody pulled out," Mr. Hannigan said.
To mitigate the risks that hurt those banks in the last cycle, Hypo syndicates a significant portion of its loans, as it plans to do with the Trump deal. Already it has sold a chunk to Union Labor Life Insurance Co., Washington, D.C.
Unlike the conduits, Hypo rarely makes loans with terms longer than five years, focusing on short-term construction loans and interim financing. It typically makes loans between $40 million and $50 million, and never smaller than $25 million. The bank's U.S. real estate portfolio is about $4 billion.
It also eschews advertising, and steers clear of hotels. "We want to focus on the elite of the industry," Mr. Hannigan said, "because they have balance sheets and, we hope, they are the survivors."