Real estate banking

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The real estate banking in the classical sense includes "all salable services of banking activities that directly or indirectly related to the property have as an investment product." The modern form of real estate investment banking can be understood as a fusion of the classic services of real estate banking such as long-term credit or fund financing and investment banking. There are three reasons for its development:

  1. On the one hand, the main business of the banks, the classic loan, is no longer sufficient against the background of increasing volumes in commercial real estate financing, as the sums can no longer be borne by a single bank. The investors are looking for alternatives to mortgage legal protection in line with its portfolio strategy .
  2. Second, financing banks are increasingly exposed to international competition, which leads to the need to achieve competitive return on equity (RoE). Since the credit margins in the classic lending business are subject to considerable pressure due to competition, an attractive RoE of 15% for investors cannot be achieved here.
  3. The third component is the Basel II regulations . According to this paper, future loans must be backed by a certain percentage of the bank's equity capital in line with the risk involved. High-risk projects significantly reduce the bank's shareholder value because they tie up equity more than before. Therefore, other business areas and innovative services must be developed.

In modern real estate banking, the main goal of banks is to offer flexible financing instruments that optimize the customer's shareholder value on the one hand, but also protect their own capital for the reasons mentioned on the other. Financing is often not provided directly by the bank, but by the capital market , so that the bank only offers services and finances itself through commission income. In this way, only a limited amount of equity is tied up and the RoE can be maximized. In addition to capital market-based financing, modern real estate banking also stands for the combination of investment banking services with real estate. Banks are increasingly integrating services such as the optimization of real estate portfolios, the management of M&A transactions or the securitization of customer assets in their offerings.