GERMANY Trends and Developments Contributed by: Carsten Loll, Otto von Gruben, Ivo Veit Wanwitz and Sebastian von Hornung, Latham & Watkins LLP
Latham & Watkins LLP Reuterweg 20 60323 Frankfurt am Main Germany
Tel: +49 69 6062 6000 Fax: +49 69 6062 6700 Email: carsten.loll@lw.com; otto.von.gruben@lw.com; Web: www.lw.com
Germany’s Private Equity Real Estate Market: Consolidation, Alternative Capital and Sectoral Shifts Market overview Germany’s private equity real estate (PERE) market remains a key component of the European real estate investment landscape, despite ongoing economic challenges. Following a prolonged correction period from 2022 to 2024, the market entered a consolidation phase in 2025. Commercial real estate transaction vol - umes reached approximately EUR23 billion to EUR34 billion, depending on the methodology applied, which remains significantly below the 2019 to 2021 peak. Germany’s broader economy continues to experience stagnation, with GDP growth projected at around 1.0% for 2026. Structural weaknesses, including reg - ulatory complexity, a high tax burden, and political uncertainty, continue to dampen investor confidence. Nonetheless, the market is gradually establishing a “new normal” characterised by selective capital allo - cation, a strong focus on quality, and increasing diver - gence between sustainably transformable core assets and structurally challenged portfolios. International capital activity has risen to multi-year highs. Foreign investors accounted for more than 44% of commercial real estate transactions in 2025, underlining growing institutional confidence in Germa - ny’s structural advantages, including political stability, transparent legal frameworks, and a deep institution - al infrastructure. Investors who can adapt to these evolving conditions may find attractive opportunities in distressed assets, preferred equity structures, and
high-growth sectors such as data centres and resi - dential real estate. Investment structures: preferred equity and key players Preferred equity investments In Germany’s evolving real estate market, preferred equity has become an increasingly important financ - ing tool. As traditional bank lending tightens due to stricter regulation and heightened risk aversion, inves - tors are turning to alternative financing structures. Pre - ferred equity, with its debt-like characteristics, offers a hybrid solution that combines elements of debt and equity. It provides investors with priority returns while allowing developers to access capital without relin - quishing full ownership. This trend is particularly evi - dent in residential real estate, where demand remains robust and stable, but traditional financing conditions have deteriorated significantly. The rise of preferred equity mirrors the broader growth of alternative financing in Germany. While mezzanine financing has long been used to bridge funding gaps, preferred equity is gaining traction due to its flexibility and relative cost efficiency. It is often cheaper than common equity and can function as a bridge financing tool. Although preferred equity investors typically do not participate fully in the upside of a project, manda - tory minimum returns are a common feature. Key legal aspects of preferred equity investments • Principal and debt service – capital contributions may be structured with mandatory monthly returns
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