Alternative real estate financing thrives in Germany

The German alternative real estate financing market is experiencing a notable upswing in sentiment, as highlighted by the FAP Real Estate Private Debt Report Germany 2025. 

Hanno Kowalski

Despite persistent challenges, market participants have adjusted to higher interest rates, and banks are showing increased flexibility. This environment continues to favour alternative lenders, with whole loans and stretched-senior structures emerging as dominant and reliable alternatives to traditional bank financing. Whole loans, with an average loan-to-value (LTV) of 72%, reflect a more realistic market outlook compared to the previous year.
Mezzanine capital remains a niche product in Germany, primarily offered by smaller debt funds and family offices for smaller transactions. International private equity firms, while open to subordinated lending, often have return expectations and minimum loan sizes of €20 mln that don't align with current market dynamics.
Investor interest is on the rise, with a growing number of institutional players focusing on whole loans and an acceleration in new debt fund launches. Institutional investors are also showing renewed appetite for real estate through fund structures. Family offices remain active as equity providers, while significant capital from international private equity funds is flowing into the German market.
Alternative lenders are prioritising quality and stability, focusing on high-quality assets with stable cash flows. Residential and mixed-use properties remain popular, but hotels with robust operating concepts are significantly gaining traction. Project developments are also gradually regaining acceptance, with specialised funds entering the market.
Hanno Kowalski, managing partner, FAP Group, said: “The key takeaways from this year’s report: sentiment among lenders has improved. Capital is available, and whole-loan financing is accessible, even for large-scale projects. And banks have become more willing to compromise. Among asset classes, hotels are gaining ground, while life science properties and data centres are losing appeal.”
Kim Jana Hesse, senior VP, FAP Group, added:  “Whole loans have firmly established themselves as a standard product in the alternative financing mix. Their pricing is approaching bank levels while offering faster execution. This gives alternative lenders a clear competitive edge.”
Asset class preferences see residential leading, followed by mixed-use and logistics. Hotels have experienced strong momentum, with lenders supportive of projects with viable operating concepts. Office properties remain in demand only in prime, ESG-compliant locations. Sites with secured planning permission are financeable, albeit under conservative conditions.
Kowalski added: "Alternative financing solutions are often the key to enabling projects that would currently stand no chance with traditional banks. In times of constrained liquidity, they represent an essential stabilising factor for the real estate market.”
While Germany's Class A cities remain a focus, German alternative lenders are increasingly active abroad. The report also observes a shift in project landscape, with increased activity in C and D locations, where local developers with deep market knowledge play a vital role.