Frankfurter Allgemeine Zeitung, 6 March 2009

The crisis in the financial markets has resulted in the trading of large property parcels grinding to a halt. Transaction advisers and credit institutes have become as silent as the grave. The time you could raise substantial loans has passed. Even first-class property can, today, be financed only if you are able to provide 30 to 50 percent of the capital needed yourself. Investors who expanded strongly in the last few years with the help of the financial markets are experiencing difficulties: the loan repayment period can be extended, if at all, only if the company can markedly increase its own asset capital. Many investors will, however, find this impossible to achieve.

This scenario alone will, in the foreseeable future, lead to banks having to grapple anew with an increasing number of problematic cases in the lending business, especially if the economic crisis gains momentum. Property markets lag behind economic developments, so the recession will hit the property business fully only in the course of the year. Declining commercial rental income, loss of rent on account of bankruptcy and unoccupied premises will result in the revaluation of property and to contractual credit agreements, so-called covenants, not being observed. In the case of many property finance plans, a down valuation of but a few percentage points would lead to a firm’s own capital assets being completely eaten up. A large number of property companies who are substantially dependent on outside capital will deposit their problematic property on the bank’s doorstep.

Financing was mainly “non recourse” – i.e. only the property itself secured the loan – and so banks will be sitting on a big portfolio of properties in difficulty or at least valued too highly. The property investors will either have disappeared from the scene or written off the capital they invested themselves, leaving it up to the banks to cope with residual problems. It will not be possible in the meantime to sell off such inherited burdens on a grand scale. Neat handiwork is called for instead: the individual property, the portfolio itself and the company as a whole must be put back on their feet and restructured. Since banks scarcely have any resources left for such tasks, they will have to avail themselves of outside assistance. They will be able to profit from the fact that in Germany a steadily growing market for interim management services has developed. The engagement of professional temporary directors, who take over the management of a company for a time, has been widespread in the Netherlands for decades. The umbrella organisation German Interim Management estimates there to be a total of 1,500 interim managers in Germany. The market volume for interim management services is in the order of half a billion euros. We may assume that the market will grow annually to the tune of ten to thirty percent.

Interim management has stood the test of being, together with classic consultancy, a proven instrument to sort out temporary management problems. The advantage of employing such outside managers is that they are available at short notice, are highly competent in their field and solve problems speedily. An interim manager specialised in the property business and conversant with the trade and the market will be able to assess problematic ventures rapidly, identify weak economic points and suggest pertinent solutions without more ado. When drawing up a rescue plan in a crisis, it is of decisive importance that symptoms be quickly recognised and the cause of the crisis localised, so that determined intervention can take place immediately. There will be no time to experiment.

The author is a partner of Comes Real GmbH in Starnberg.

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