(Bloomberg) -- Societe Generale SA is attempting to sell part of a loan secured against a portfolio of German apartments that were bought by a KKR & Co. venture from Adler Group SA last year, according to people with knowledge of the matter.

The French lender, which financed the deal with a partly syndicated €700 million ($757 million) loan, has about €280 million remaining that it wants to dispose of, the people said, asking not to be identified as the process is private. The bank had originally planned to syndicate the whole loan, which was agreed in early 2022, before its efforts were thwarted by Russia’s invasion of Ukraine, rapidly rising interest rates and a gloomy outlook for German property prices, the people said.

KKR and its German residential real estate partner Valero paid about 1.05 billion euros for the 14,400 apartments and commercial units, according to an Adler earnings statement. 

Representatives for SocGen and KKR declined to comment. 

The rapid rate hikes unleashed by central banks last year in an attempt to contain inflation have roiled real estate and wrong-footed investment banks that were part way through deals. The SocGen loan is one such currently being offered to opportunistic debt investors to take it off the lender’s balance sheets.

In a bid to help sell the loan, SocGen is offering to slice the portfolio into three portions and find mezzanine solutions for each of the three parts, according to one person familiar with the matter.

“Regional banks added significant exposure to the CRE property market during the past several years,” Marathon Asset Management LP Chief Executive Officer Bruce Richards said in an email on Monday. “Given significantly lower valuations that have become apparent for commercial property, I expect loan-loss provisions to increase materially over the next year.”

So far, German real estate valuations haven’t moved dramatically despite a sharply higher cost of borrowing. The country’s largest landlord Vonovia SE wrote down the value of its vast apartment portfolio by 3.9% in the second half of last year, while smaller rival LEG Immobilien SE marked down the value of its assets by 4.4%. 

The slow-motion correction is a result of a market where few large real estate portfolios have traded, reflecting the vast gulf that’s opened up between buyers and sellers’ views of what value really is. The lack of transactional evidence has meant valuers have yet to mark down valuations aggressively. Austrian landlord S Immo AG last week agreed to sell a Berlin portfolio at a discount to book value of less than 10% to an all-cash buyer, Bloomberg News reported. 

--With assistance from Donal Griffin.

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