July 21, 2015 Will Deutsche Bank keep investing in trophy properties?
In 2012 German regulators examined allegations that Deutsche Bank had manipulated benchmark interest rates for profit, and a few months ago the bank agreed to pay $2.5 billion in market manipulation penalties to U.S. and U.K. authorities. But the scandal has hardly put the brakes on Deutsche Bank’s lending activity in the NYC commercial real estate scene – for now, at least.
Deutsche Bank (or its subsidiary, German American Capital Corporation) was the originator or lender of four out of the top 10 CRE loans in New York City between June 2014 and June 2015.
The two largest were a $1.13 billion loan for 1095 Avenue of the Americas, a 42-story commercial condo overlooking Bryant Park, and a $1 billion loan for the Crown Building, an office tower at 730 Fifth Avenue. Both loans were issued this year.
In addition, German American originated a $750 million loan for 277 Park Avenue, an office tower owned by the Stahl Organization that has tenants including J.P. Morgan and SMBC Capital Markets. Together with Bank of America, German American also refinanced a $675 million loan for 520 Madison Ave., a 43-story office tower that features a segment of the Berlin Wall displayed as a permanent art exhibit. Both transactions took place in July of last year.
But is this pattern of investing in trophy buildings going to continue?
After all, Deutsche Bank is in flux this summer, with new chief executive John Cryan appointed on the heels of a recent BaFin tongue-lashing over the corporate culture it says led to the bank’s market manipulation. Deutsche has also lost Jonathan Pollack, the global head of its commercial real estate group, to Blackstone.
And amid higher litigation expenses (up from 470 million euros to 1.2 billion) and comments from Cryan that Deutsche Bank’s net income in Q2 was “nowhere near good enough” (despite more than tripling, to 818 million euros), Germany’s largest lender is freezing 2015 cash bonuses for management board members and cutting back on overseas activities. It is reportedly pulling out of countries such as Finland, Malta, New Zealand and Peru, where it has a small presence.
It’s hard to say just yet whether or not Deutsche will keep adding high-profile buildings to its roster, but we may not have long to wait: The bank has said it will publicize details about its new strategy at the end of October.