The restructuring wave hiding in plain sight

For three years, German real estate has been waiting for a wave of non-performing loans to break. It hasn't happened — and not because the underlying distress isn't real. According to panellists at a recent PB3C webinar on how Germany's property market is dealing with financial distress, lenders, borrowers and fund managers have found ways to resolve that distress before it ever shows up in the NPL statistics.

Oliver Platt, partner and head of real estate finance at KUCERA Rechtsanwälte, describes the phenomenon as a "Precursor-NPL wave". Banks facing loans that are not yet technically non-performing — but are heading that way — are restructuring them pre-emptively: fresh investors brought in, haircuts taken in the senior tranche, existing sponsors retained as service developers in return for a fee and a "Besserungsschein", an upside-sharing arrangement if the asset recovers. Economically, Platt argues, it is indistinguishable from an NPL transaction. The difference is that the loan never reaches the point where it is formally classified as one. "Wirtschaftlich haben wir genau den selben Effekt," he said — the economic effect is exactly the same.