Germany's regional banks are the ones to watch when it comes to whether or not a global banking crisis will in the North. Credit: Ralphs_Fotos via Pixabay

The Subplot

The Subplot | Property bank loans, studios, Liverpool

Welcome to The Subplot, your regular slice of commentary on the business and property market from across the North of England.


  • The global banking crisis could have Northern consequences as commercial property begins to feel the heat
  • Elevator pitch: your weekly rundown of who is going up, and who is heading the other way


The global banking crisis becomes a local problem

The banking crisis – if that’s what it is – is about to hit commercial property. Maybe it’s time to watch Germany’s regional banks?

Oxford Economics warned earlier this week that the banking storm was about to hit commercial real estate. “Recent bank funding turmoil will lead to additional tightening in credit conditions for commercial real estate at a time when the asset class is already reeling from higher debt costs, an inadequate risk premium, and emerging refinancing distress,” it said in a report on the sector. The consultancy suggested that some of the trouble comes from shadow banking of various kinds: “much of the lending falls outside of regulatory oversight, so the risks are much more opaque”. But clearly banks are a big part of the mix.

On one side

So where to look for trouble? Does the market look west to the US, or east to Europe? The crisis in US regional banks like Silicon Valley Bank and Signature Bank is heavily wrapped up in real estate. Some sources suggest up to 70% of the commercial-mortgage backed securities in smaller banks are property-related. However, their travails don’t pose direct threats to the North because – clue in the name ‘regional banks’ – they aren’t heavily involved in international lending. It’s a different story if you look east.

On the other side

Credit Suisse has been seriously active in Manchester: last year it sold the 25,000 sq ft office block at 44 Peter Street for £6.9m, making an exit after a £20m 2019 purchase of this block and the 36,000 sq ft 19 Spring gardens next door. So probably not a money spinner (side note: Credit Suisse Asset Management completed a refurb in Spring Gardens in 2021). But the problem goes much wider than hobbled Credit Suisse.


This morning the City of London’s Bayes Business School published data on European bank lending, the first analysis of its kind. It’s complex stuff but the unsurprising gist is that lending just got a lot more expensive, doubling from 2%-3% to 4%-6% on senior lending against prime assets, more like 7.5% on opportunistic or repositioning plays.

LTV, as usual

However, the key line is on loan to value ratios, and this is what it says: “German bank lenders still offer some of the highest LTV for investment assets (between 75% and 80%) and loan-to-cost for development lending (between 77% and 82%). Other European bank lenders have been more conservative (between 55% and 60% LTV and 60% and 75% LTC).” In other words, German banks have taken very much riskier positions if you think valuations are an issue – and they are an issue.

Kannst du sehen?

The brokers and intermediaries Subplot has spoken to say the same thing: watch the German regional banks. There’s no need to panic, the Germans aren’t going – without October’s signing of German lenders, McAleer & Rushe’s 140,000 sq ft speculative £85m office block at City Square House in Leeds would not be happening. Besides, there’s a long record of German lending in the North. German banks splurged in Manchester in 2016-2018 – big deals included the £85m sale of Allied London’s XYZ Building and mega-funding deals at Angel Gardens. Whilst they’ve been active since, they aren’t dominant.

It’s all different

Even so, loans agreed in the ultra-low interest world of 2016-2018 assume vastly different interest rates than today, or even this time last year. Meanwhile many banks’ commitments on the other side of the balance sheet have gone up like rockets.

To pick an example out of thin air, look at Helaba Bank, the trading name of Landesbank Hessen-Thüringen Girozentrale, a German regional bank.

Familiar figures

Helaba have long had links with the North West: it put up half the money for a £54m PFI revamp of Liverpool Central Library as far back as 2010. As recently as 2019 it was one-third of a consortium of lenders providing a £292.5m loan to Peel Media and Legal & General Capital to fund the next phase of MediaCity. These folk are neither amateurs nor newcomers.

And then this

Last month Helaba was sanctioned by the European Central Bank for “consciously” misrepresenting its exposure to turbulent financial markets during the Covid-19 pandemic so it would need less capital. Helaba was fined about 3% of profits. At roughly the same time, Helaba apparently intervened to stop the sale of Leicester’s Highcross shopping centre, placing it into receivership. Loan to value covenants were breached on the 1m sq ft centre, with co-owner Hammerson revaluing its £236m stake (at 2018 prices) at exactly zero. Helaba and NatWest had refinanced the Hammerson half with a £165.2m five-year senior loan, with £159.2m still owing at December 2021, CoStar reported.

A reminder

See above for German banks and high loan-to-value ratios. Helaba was approached for comment on Highcross and its lending strategy in the North, but the bank politely declined to do so.

None of this means Helaba is about to follow Credit Suisse into the banking twilight zone. No no no. But maybe it does suggest that German regional banks are complicated and more exposed to real estate risk than some others in the traditional banking sector. The North, a happy hunting ground, needs to be alert.


Going up, or going down? This week’s movers

Liverpool’s white-collar workforce gets a boost, while a rush of studio developments causes Manchester to think long-term. Doors closing, going up.

Middle-class Merseyside

Some good news from Liverpool. Bruntwood is to increase its shareholding in Sciontec Developments, the scitech vehicle operating in the city’s Knowledge Quarter. It is likely to end up with a controlling stake, up from a modest 25%. Bruntwood’s move will dilute the share owned by the other partners, University of Liverpool, Liverpool John Moores University, and Liverpool City Council. The additional equity means the 120,000 sq ft Hemipshere office building, and a few other projects, look a lot more plausible.

If Liverpool is to sustain a high-wage, white-collar workforce it will need focused developments like Hemisphere. That Bruntwood is prepared to put money into the idea suggests it’s a real prospect and since it knows the city well, presumably it has taken into account the local political headwinds and feels they can be overcome. The city’s well-wishers must hope the management at Bruntwood is right.


Covid lockdowns were a massive spur to the TV and film production business – after all, we needed entertaining – and although Covid is now largely history, the studio/screen property business is still red hot.

But three years of studio development leaves the market looking more complicated and competitive. Ever-alert Manchester City Council has called the top of the market and is preparing the sale of the 200,000 sq ft Space Studios in Gorton, used by the likes of Netflix and Amazon. The idea of adding 70,000 sq ft will be left, wisely, to a new owner to decide upon.

Get in touch with David Thame:

Your Comments

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The Liverpool city and City Region middle-class mostly took flight decades ago with the demise , for example, of banking , insurance , and white -collar maritime related jobs in the area.
Areas that were once very respectable are now not so, and you can witness the fine housing that existed in, say, Bootle to see many people were reasonably well-off.
For a fair number of people these days gentrification is not acceptable, but why, don`t most people want to be better off and live in pleasant surroundings, too many people think we all have to dumb down and be the same.

By Anonymous

Very true comment by Anonymous. Unfortunately the local politicians would like the population to adhere to their own dumbed down socialist agenda. They have little or no understanding or experience of white collar careers, and this is perhaps the reason why there is such a shortage of suitable office space for the relevant white collar industries. “Council Knows Best” policies have doomed the city. Let’s hope the next Council Elections will yield a better quality of councillor.

By Anonymous

Worry more about which UK banks will be going bankrupt or bailed out because the regulations banks put in place post 2008 have been undermined by the successful lobbying by banker’s of politicians.We are heading for a massive commercial property crash with rampant inflation and high interest rates and banks restricting lending .

By Bob James

And Trafford Park went for a quick knockdown price of £26 million a week ago.

By Anon2

@Bob James Manchester will be fine though, Renaker will keep building towers

By Dan

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