By Tom Sims
FRANKFURT (Reuters) – A Munich-based property developer said on Friday it had filed to open insolvency proceedings with a local court, in the latest sign of stress in Germany’s real estate sector.
Euroboden GmbH, with 115 million euros ($126 million) in bonds outstanding and facing possible downgrades in its credit rating, said in a statement that negotiations for property sales had fallen through, hurting its finances.
It also cancelled a meeting with bondholders later this month, where it had hoped to restructure its debt.
“The market outlook for project developers continues to be negative,” Euroboden said, citing high construction costs and interest rates, a slump in demand, and difficulty in getting credit.
Germany has long benefited from an era of cheap money that fuelled a boom in real estate, but now the sector is grappling with a major turn of fortune.
New building permits and construction have plummeted as residential property prices fall and construction job growth stagnates.
Euroboden was founded in 1999 and expanded to Berlin and elsewhere during a decade-long property boom.
Though not large – it made a net profit of 25 million euros and counted 55 employees when it marketed its latest bonds – Euroboden underscores broader sector troubles as the latest in a wave of insolvencies.
Earlier this week, Duesseldorf-based company Development Partner said it had also filed for insolvency, and in July, property developer Centrum Group did so too, citing a “toxic triangle” of cost increases, higher interest rates and stalled investment.
Weakness in real estate has also emerged in the United States and Sweden.
Germany is Europe’s largest economy and the biggest real estate investment market on the continent. The property sector accounts for roughly a fifth of Germany’s economic output and one in ten jobs.
In a July investor presentation, Euroboden said it had hoped to extend its bonds by three years, and it was refocusing on core business in Munich and Berlin after closing an office in Frankfurt.