In 2007, Hypo RE was a go-to bank for customized commercial real estate financing in the U.S. German central bank bailout, Hypo, is struggling to keep up with those investments in the wake of dwindling values, especially in the U.S. Now known as Deutsche Pfandbriefbank, the financial firm is looking to lighten the load even further. Hypo RE last month transferred $236 billion in assets to FMS Wertmanagement, with law firm Hogan Lovells International working in an advisory role. Following the transfer of those assets, Hypo RE continues to service the transferred portfolio for FMSW. However, investor documents reveal that the bank is being prepared for a future re-privatization, with the objective of repaying capital support provided by the German central bank "to the maximum extent possible." That plan no longer includes servicing the U.S. portfolio. This, despite the outlook improving in the commercial real estate space. George Ratiu, research economist for the National Association of Realtors, said in a research paper summarizing the third quarter that "U.S. commercial real estate investors are finding improved conditions in certain markets and property types. While fundamentals for office, industrial and retail properties are still trying to shake off negative absorption and rents, demand for apartments has been strong — and continues to rise." Ratiu adds that this improvement is still at the expense of transaction volumes which remain at historic lows. "As far as the U.S. real estate portfolio is concerned Hypo Real Estate is considering outsourcing a substantial portion of the servicing, which could include the transfer of a substantial number of employees," said a source inside Hypo RE's operations. "The options under consideration are designed to lower operational risks in the U.S. platform and to enhance efficiency," she said. Rumors are circulating that private-equity houses may be bidding for the opportunity. Front-runners, market players say, include usual suspects Apollo, JC Flowers and Lone Star. "We cannot comment on potential partners," said a source familiar with the deal. Hypo Real Estate is one of the largest benefactors of the Financial Market Stabilization Fund (SoFFin), which was set up by the German central bank during the recession. Since late 2007, Hypo received more than $20 billion in guaranteed notes from the Federal Ministry of Finance in Germany. Write to Jacob Gaffney.