Developing Deposits

Seeking Revenues Beyond Rents, Real Estate Giant Looks to Banking

Annington CEO Rolf Buch wants to expand beyond housing into banking. Source: DPA
House bank? Deutsche Annington CEO Rolf Buch wants to expand into banking.
  • Why it matters

    Why it matters

    With its own bank, Deutsche Annington could park millions in rental security deposits onto its own books.

  • Facts

    Facts

    • Founding or buying a bank fits Annington’s strategic framework, its chief executive says.
    • Automakers’ banks serve as a model.
    • In order to provide loans, an Annington financial institution would need a full banking license.
  • Audio

    Audio

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Collecting rent alone is no longer enough for the major residential real estate company Deutsche Annington. The property giant wants to expand its revenue chain by either buying or opening its own bank.

“Founding or purchasing a bank is fundamentally within the framework of our strategy,” said Rolf Buch, Annington’s chief executive, in an interview with Handelsblatt.

He declined to say more about the plans. But apparently preparations are underway, because Annington has contacted the consultant firm McKinsey about the plans for a bank. McKinsey refused to comment about the Handelsblatt’s information.

Manufacturers and service providers acquiring banks is not new. In February, Airbus purchased a credit institute in Salzburg, Austria. The acquisition is supposed to open up “additional financial opportunities” for the aviation group. A few weeks later, the machine tool company Trumpf established a bank for sales financing. What Trumpf is planning on a small scale, automakers have been doing on a grand scale for years. They stimulate sales by offering car loans to their customers.

Classic banking lives from deposits and credits, framed by other services. Trumpf wants to win deposits through current and savings accounts for its employees. The automakers’ banks attract customers through money market accounts and fixed-term deposits.

Besides rent, money from security deposits flows into residential real estate companies. This, however, is money held in trust that renters normally pay into a savings account in case the they are left owing rent. Annington could attempt to pull this money into its own bank.

Carmakers’ financial units show how to attract customers’ money by offering above-average interest for their bank accounts.

Typically, German landlords demand from tenants three months of rent in advance. The amount of the security deposits of a residential real estate company would calculate to be a quarter of the yearly rental earnings. But it looks different in practice.

“We have learned by experience that landlords in structurally weak areas partially or completely forgo the payment of security deposits,” said Christian Sili, executive spokesman of the Deutsche Kautionskasse, which provides security deposit insurance for tenants and cooperates with a number of residential real estate companies.

Renters have various financial tasks to manage, and Annington hopes to help them. Source: DPA
Renters have various financial tasks to manage, and Annington hopes to help them. Source: DPA

 

The big landlords calculate with a security deposit volume of 10 to 15 percent of the annual rental receipts. This year, Annington is expecting rental revenues in the order of €770 million (about $1.028 billion). This would result in a security deposit volume of about €80 to €120 million – an amount that can be increased if the more than 200,000 tenants soon deposit additional money at the Annington bank. The carmakers’ financial units show how to attract customers’ money by offering above-average interest for their bank accounts.

In order to provide credit, the Annington institution needs a full banking license. The possibility of financing its own real estate projects, however, is uncertain, because banks are not allowed to dole out loans as they please.

However, the Annington bank could take care of services that others are doing for them today and collect the fees due themselves. This includes, for example, the brokering of loans from the German government-owned development bank KfW. Annington is planning on spending €160 million this year alone for modernization of property holdings. But the Bochum-based company cannot apply for the KfW loan on its own. A bank must do that, which is why Germany’s biggest landlord had to ask HypoVereinsbank to apply for its largest residential KfW loan credit of €70 million.

However, brokering loans from the state-backed KfW doesn’t yield high margins. The development bank characterizes them as “adequate.” But according to research by the Handelsblatt, only 0.75 percent of the loan interest is left over for the brokering bank.

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