Aareal Bank is working with Alvarez & Marsal on a deal to offload credit risk as the German lender pursues growth across European property markets and eyes a potential acquisition at home.

The Wiesbaden-based lender and the advisory firm are discussing with investors a significant risk transfer tied to around €2.5 billion ($2.9 billion) of commercial real estate loans. The potential SRT would hedge lending in euros, sterling and dollars secured by European assets including hotels, offices and industrial properties.

Aareal, owned by investors including Centerbridge Partners and Advent International, has repaired its balance sheet and sharpened its focus on European real estate and global hospitality assets. It is also looking to grow deposits in Germany and is considering a potential bid for Hamburg Commercial Bank AG. Demand for SRTs remains robust among investors drawn by double-digit returns.

At the end of the second quarter, Aareal’s core equity tier one ratio stood at 15.6%, more than 600 basis points above the minimum requirement. Its midterm strategic program targets a return on equity of about 13% by 2027.