European banks are scared off from US real estate loans

December 23, 2011 04:08PM

From left: The entrance to Eurohyop’s NYC offices and 9 MetroTech Center (building credit: PropertyShark)
As European banks mitigate risk amid the debt crisis that’s consumed the continent, many have stopped lending for commercial real estate projects in the U.S., Reuters reported. The total amount of money European banks loaned to the sector has fallen by 31 percent in the last two years, according to Trepp, and more banks have announced they would reduce U.S. property loans.

While European real estate lending is not widespread in much of the United States, it is crucial in big cities like New York. Forest City Ratner was directly affected by this trend in October, when German bank Eurohypo suddenly dropped out of serious negotiations to provide a $65 million loan for 9 MetroTech in Brooklyn.

“It’s their problems at home that are more the issue rather than [being] hugely worried about U.S. exposure,” Matt Anderson, managing director of Trepp, said.

Combine Europe’s departure from the real estate loan market, and the tightening lending standards at home, and the U.S. is forced to look to Asia to fund large projects. But Japan has also retreated from U.S. commercial real estate lending, and though China has stepped up its lending by more than 260 percent to $3.1 billion, and Taiwan has increased its exposure 6.7 percent to $2.4 billion, that doesn’t compensate for the billions Europe is no longer willing to lend. [Reuters]