Real estate financing in transition: Alternative investors are gaining in importance

This is the result of a round table to which the communications consultancy Feldhoff & Cie. (FCI), which specialises in the real estate industry, invited industry experts and representatives of the trade press. Hanno Kowalski (Managing Partner, FAP Group), Dr. Alexander Schätz (Founder and Partner, Pasendia), Bernd Grum (CFO, Pegasus Capital Partners) and Oliver Scheil (CEO, REM Capital) took part in the discussion.

There was agreement that the financing gap in the market has become structurally entrenched and is likely to continue to widen. "The alternatives cannot fix it in all places, neither in terms of volume nor in terms of financing reasons," emphasized Hanno Kowalski. "This hope that alternative financiers will be completely self-sufficient is not the case." Bernd Grum also sees clear limits: "The financing gap is there, it is large and it is a structural phenomenon. The alternative financiers are a solution valve, but they can't solve it either."

In view of restrictive financing policies, rising investment costs and volatile market conditions, investors who have so far been reluctant to readjust their strategies. While many risks are currently still being cushioned by banks, the participants expect the situation to deteriorate noticeably. "A lot still remains on the balance sheets of the banks because they are prolonging out of pragmatism," said Kowalski. "But we will see cases that cannot be refinanced – and that also applies to supposedly stable assets." Demand is already confirming this development: "Around two-thirds of our inquiries relate to refinancing of existing loans and one-third to new business. This shows where the pressure is at the moment," said Dr. Alexander Schätz.

At the same time, the logic of lending is changing fundamentally. "The primary key figure today is no longer the loan-to-value, but the debt yield," Schätz explained. "If you used to finance highly, you now have a massive refinancing problem." Alternative financiers are also acting much more conservatively: "I can't afford to default. I have to value the property as if I were buying it, even if I only finance it," says Kowalski.

But not only banks, but also institutional investors are acting cautiously. "There is hardly any liquidity to finance larger volumes," Kowalski said. "Many investors first have to stabilize their holdings." Oliver Scheil nevertheless sees differentiated developments: "We definitely see investors such as insurance companies or pension funds investing – but with a different risk profile and with a focus on stable cash flows."

Last but not least, the current intense debate on private credit was also classified in a differentiated way. Kowalski pointed out that different risk profiles are often mixed: "In the perception, private credit often also includes the real estate business. Here you have to differentiate more clearly, because it is a completely different basic security per se, a different risk profile." At the same time, however, there were direct interactions, for example through declining capital inflows from institutional investors, which are also increasingly influencing real estate financing.

Despite the growing importance of alternative financiers, cooperation with banks remains central to functioning financing structures. "For us, this is not a question of either-or, but absolutely complementary," Scheil stressed. "We combine banks, alternative investors and funding to create optimal structures." Grum added: "This is a triad of banks, project developers and alternative financiers – one does not work without the other."

In the long term, however, the participants expect a shift in the market in favor of alternative forms of financing. "I am convinced that alternative financiers will continue to expand their importance," said Dr. Schätz. "They can take the customer relationships they have now gained into the next market phase."

The hour of the alternative financiers has begun – albeit under difficult conditions. They are clearly gaining relevance in a tense market, but they are reaching clear limits in terms of volume, capital availability and risk assumption. A complete closure of the financing gap remains out of reach for the time being.