Last year, Estateguru signed a contract with Steinberg Management, a highly experienced German special service provider, to assist in the liquidation of the problematic German portfolio. Steinberg is receiving support from two local law firms, Estateguru’s internal team, which was created to solve German portfolio issues, and other experts as necessary.
Each month, Estateguru contributes at least €30,000 from its own funds towards running costs related to the management of the German portfolio. In the following interview, CEO of Steinberg Management, Antje Mertig, who has over 30 years of experience in financing and debt collection, provides an overview of the current situation and the prospects of the German loan portfolio going forward.
Does Steinberg have a complete overview of the loans of Estateguru investors in Germany by now?
Yes, after entering into a contract with Estateguru to manage the liquidation of this problematic portfolio, and following nearly 9 months of intensive effort in 2023, we have obtained such an overview. Subsequently, over the past year, our team has reviewed all the projects, one by one and in great detail, and implemented specific work-out strategies for each loan. It is very important to emphasise that Estateguru has contributed a significant amount of its team’s time and resources to this process.
Have there been any major positive changes in regards to the problematic loans?
In terms of loan repayments, unfortunately not much yet. Due to the current weakness of the market, the realisation of the entire loan portfolio in one go would involve a very large discount. Thus, in order to maximise investor returns, we have opted for enforcement, bankruptcy, or individual claim realisation as our strategies, depending on the specifics of each case.
Unfortunately, efforts in this regard have also been delayed due to the downturn of the real estate market. It is also very important to understand that the relevant German legislation, especially the enforcement law, follows a strict formal process and this might result in lengthy legal proceedings for some projects, especially if the borrower is not committed to resolving the problem, or actively works against such a resolution.
For example, before starting a forced auction, you need to prove that relevant correspondences, including demand and termination letters for loans and mortgages, have been physically delivered to the appropriate parties in a proper manner. In addition, there is a mandatory 6 month waiting period between the termination of the mortgage and the start of the enforcement. If you want to start enforcement actions, you need to deliver the mortgage deed via the court bailiff and borrowers can evade this process for weeks, or months, or sometimes even years.
In some cases, borrowers have changed their addresses or managing directors and sometimes it takes multiple attempts before we can get hold of them. Therefore, I anticipate that for many loans, it could take as long as 3 to 5 years to achieve a resolution. That has been the reality, based on our extensive experience, and I’m not going to sugarcoat it here.
Could you elaborate on the current status and time horizon of specific loans?
I understand investor frustration and wanting to know specific details in regards to each project into which they have invested but It would be counterproductive for me to provide such information at this stage. Sharing our activities, tactics and plans here would allow the relevant counterparties to prepare accordingly, with the result that those borrowers not planning to honour their obligations may be able to further slow down the process.
This is also the only reason why, acting on our recommendation, Estateguru has not shared project-based status reports for some time. We have asked them not to because it is in the best interest of their investors. In addition, at the beginning of this year, we agreed that current procedural information will be shared only by a representative of Steinberg, and only if it does not harm the ongoing debt proceedings.
We are asking for your understanding as the representative of Steinberg does not respond to individual investors and we only make public summaries in connection with major progress. Estateguru has confirmed to us that all the current information that can be shared about the progress of each particular loan can be found on the platform in the timeline section of the relevant project.
What we can disclose is that we follow an individual, multi-track strategy for each loan. Initially, we attempt to pursue an amicable solution with the borrower, e. g. the sale of the property monitored by us to ensure the price is at market level, or settlement agreements. In cases where such cooperation proves futile, we prepare for enforcement, which entails the termination of the mortgages, and insolvency proceedings, forced auction and forced administration to gain control over the asset and the cash flow. In some cases, we have also started personal enforcement against borrowers and guarantors to increase pressure.
You mentioned that some borrowers can deliberately decide not to honour their obligations. Does this mean these borrowers are malicious and hostile?
If you look at the situation from the borrowers’ point of view, you see that procrastination is not always malicious. You find in some cases that people have contributed to a business project, and invested their time and money in it, but the project has not succeeded in the way they hoped. They do not want the collateral to be realised, because they hope they might still succeed in implementing their business plan and repaying their loans. Some borrowers may be looking for parallel refinancing, while others may be searching for a buyer at a better price for the asset that serves as collateral. This is all understandable to some degree, but it is also clear that investors cannot wait indefinitely. Unfortunately, some borrowers tend to shirk their responsibilities instead of facing up to the situation. We always try a co-operative approach first, but some borrowers seem overwhelmed by the changing market conditions, as well as their financial situations, and do not respond to our offers of a joint solution.
Our role is to be an impartial processor whose sole purpose is to safeguard the interests of Estateguru’s investors, and we will use all legal means to achieve this goal.
You said that the outlook for resolution in some cases may be 3 to 5 years. Does this mean that you expect the German problem portfolio to be resolved within five years at the latest?
Of course, we hope for a faster solution, but 3 to 5 years is a reasonable expectation based on our extensive experience. It’s my duty to emphasise that no-one can give any guarantees today. In some cases, we are seeing highly systematic efforts to slow us down. Also the German real estate market is still very weak and the recovery has not taken place at the expected pace. At the same time, we have contracted brokers who are responsible for the realisation of collateral assets and this work is ongoing. They will start marketing as soon as we gain control over the collateral, e. g. as part of insolvency proceedings or forced auctions. There is progress in absolutely all problem loan projects and active engagement in finding solutions is an ongoing, daily activity.
You have taken an in-depth look into the German loan portfolio. In your professional opinion, will investors get their money back and can they also expect interest?
Obviously, this is the goal, but as I have said, no-one can make any promises. Rather, investors should be prepared, at least in some cases, for the possibility that they will miss out on the expected return or lose some of the money invested. Again, I am not sugarcoating it – the risk is there, but we can also hope for good news in the future. As I said before, we cannot share detailed information at this stage, but I can promise that when projects reach a final resolution, we will explain the logic behind it.
When will people who have invested money in German loan projects get the next situation report?
As soon as possible. We will definitely report when we have reached a final resolution for specific projects. In some cases, it may be in the form of an interim report, but, as I explained, it is complicated. I myself believe that we will see the first resolutions this year, but there is still a long way to go.
Summary of the answers
The focus remains on recoveries, and Estateguru has halted new loan origination in Germany. Estateguru has partnered with Steinberg Management to manage the problematic German loan portfolio. Despite intensive efforts over the past year, the market weakness and strict German enforcement laws have delayed significant progress on loan repayments. Steinberg Management, with support from two local law firms, is implementing specific work-out strategies for each loan, including enforcement and bankruptcy proceedings. The process is expected to take 3 to 5 years. Regular updates will be provided, but detailed project statuses are withheld to avoid damaging the process.
