The owners of one of Frankfurt’s biggest skyscrapers have hired advisers to restructure €375mn of debt secured against the building in a sign of the strains facing Europe’s office market.
The Trianon building, a 45-storey skyscraper, was acquired by South Korean investors IGIS Asset Management and Hana Financial Investment for €670mn in 2018. The restructuring talks will be with a consortium of lenders led by Dutch bank ING, according to two people familiar with the matter.
The move comes as rising interest rates hit real estate markets on both sides of the Atlantic, ending years of rising property prices and the wave of deals in the sector that relied on cheap debt.
Property executives and analysts have predicted that offices, particularly older and less-desirable buildings, would likely be among the first assets to show financial strains. “The office fundamentals are deteriorating,” said one major real estate investor of the wider market.
In Frankfurt, demand for office space has fallen, with tenants signing leases for a 430,800 sq m of space in 2022, down from 2021 levels and below the five-year average, according to real estate adviser JLL. Vacancy rates have ticked upward since 2019, a period that includes the pandemic lockdowns, to 8.5 per cent at the end of last year.
German lender DekaBank had been a major tenant at Trianon, which was built in 1993, but is moving to newly developed premises in Frankfurt.
IGIS confirmed it had hired advisers but said that talks with the lenders had not started. Hana Financial Investment said: “It is an ongoing issue and nothing has been decided yet.” ING declined to comment.
The cost of borrowing to buy high-quality real estate assets across European cities doubled to between 4 per cent and 6 per cent in the year to February, according to research from Bayes Business School.
Even before central banks began lifting interest rates to combat inflation, the pandemic had darkened the outlook for parts of the office market. Faced with trying to lure staff back, companies have increasingly favoured swanky modern offices with top green certifications over older buildings.
Financial strains have also become apparent in London’s Canary Wharf, where broker JLL has been commissioned to sell a £300mn office tower as Chinese investor Cheung Kei struggles with its debt load on buildings in the east London business district, Bloomberg first reported this week.
In the US, major property investors have moved to hand back towers in Los Angeles and New York to the banks who extended the debt.
