Financial expert Maximilian Blusch from Sparkasse KölnBonn explains how to avoid mistakes when financing commercial real estate.
Mr. Blusch, what should one consider when financing commercial real estate?
Maximilian Blusch: The financing side alone has many facets that need to be clarified in advance. During the discussion, further credit or security requirements may arise that the customer has not yet taken into account. When advising on the financing of commercial real estate, it is not just a matter of making money available.
What does that mean in concrete terms?
Maximilian Blusch: It's about questions such as: Is it important that the funds are interest-fixed over a long period of time? How flexible should the financing be? Can public funds be incorporated? There are many other aspects to consider as well.
So topics that are not directly related to the financing of the property?
Maximilian Blusch: That's right. My first question in the consultation is: "Why are you buying commercial real estate?" Often, the purchase of a property is linked to the expansion of the business model, for example, which may then require additional financing. But the new property may also offer synergies, for example in terms of work processes. Financing your own commercial property is often a major step in the development of a company, which should ideally be integrated into an overall strategic concept with the help of a management consultant.
Public subsidies can also be a financing component.
Maximilian Blusch: Yes, small and medium-sized enterprises in particular can use these to make investments more quickly. The Kreditanstalt für Wiederaufbau (KfW) and NRW-Bank, among others, offer a wide range of options. These range from general subsidy programs to special subsidies, for example for energy optimization. We try to incorporate public subsidies into the financing.
After the previous KfW program was discontinued at the beginning of the year, subsidies for new buildings can now be applied for again – albeit with significantly stricter conditions.
Maximilian Blusch: That's right. Under stage 2, which has been in force since April 21, 2022, the new building subsidy will continue in the KfW Efficiency House Stage 40 Sustainability program, but with different conditions. This program will only allow subsidies for new buildings in combination with the "Sustainable Building" quality seal, which will be awarded by independent bodies following certification on behalf of the Federal Ministry of Building and Construction. The subsidy comprises a low-interest loan with a repayment subsidy of 12.5 percent of the eligible costs. Up to 2,000 euros per square meter of net floor space and a maximum of 30 million euros per project are available for non-residential buildings.
What funding options are available for the energy-efficient renovation of existing properties?
Maximilian Blusch: For non-residential buildings, KfW offers, for example, the "BEG Non-Residential Building Loan 263" loan program with a maximum fixed interest rate of ten years. However, it is also possible to apply for a KfW grant and then finance the remaining loan amount through a savings bank or a NRW-Bank program. This is particularly advantageous for those who are planning for the long term. The NRW Bank Efficiency Program for Construction, for example, has a term of up to 25 years and guarantees a fixed interest rate during this period. There are also subsidy programs for the implementation of individual energy efficiency renovation measures in the form of subsidized loans or grants. As you can see, the funding landscape is complex, diverse, and constantly changing. I therefore definitely recommend seeking support from our funding experts to make the most of all the options available.
Flexibility in financing is important to many companies. What options are available here?
Maximilian Blusch: In addition to special repayments or agreeing flexible terms for partial financing amounts, you can also achieve flexibility in interest rates through modern financing instruments. Liquidity and fixed interest rates are treated separately and the customer's assessment of interest rate developments is taken into account. This means that liquidity is provided on a variable interest rate basis and linked to an interest rate hedge. For example, if you expect interest rates to remain stable but want to avoid interest rate fluctuations due to unexpected external shocks, you can use appropriate interest rate hedging instruments to do so.
Can a fixed interest rate also be agreed using such instruments?
Maximilian Blusch: Yes, that is also possible. The advantage is that the agreement is independent of the financing agreement. For example, a so-called interest rate swap can be sold separately or reused when the property is sold at a later date. This is not possible with a traditional loan, as everything is "bundled" together.
Mr. Blusch, thank you very much for talking to us!
