GERMANY Trends and Developments Contributed by: Carsten Loll, Otto von Gruben, Ivo Veit Wanwitz and Sebastian von Hornung, Latham & Watkins LLP
(hard pay), accruals (soft pay), or a combination of both. • Preferred (investor) shares – these shares offer disproportionate dividend rights and may include minimum dividend entitlements, as well as tag- along rights in the event of an exit by common shareholders. • Common shares – common shareholders receive excess net cash flow after preferred distributions, often subject to caps. • Security and remedies – preferred equity is often unsecured. Investors rely on contractual rights to assume control of assets upon default, typically enforced through judicial mechanisms rather than foreclosure. • Call and put options – these include regular and default options exercisable at predefined dates and returns, as well as liquidity and default put options vis-à-vis third parties or co-shareholders. • Governance and control – shareholders’ agree - ments usually contain reserved matters, deadlock resolution mechanisms, and board representation rights, alongside customary information rights and warranties. • Covenants and protections – these typically include property management undertakings and financial covenants, such as loan-to-value (LTV) and loan-to-cost (LTC) ratios, as well as operational milestones designed to protect investor interests. Key private equity players in the German market Germany’s PERE market comprises both domestic and international investors. While global funds have historically been active, recent market conditions have resulted in an increased focus on distressed invest - ment opportunities. The market has also seen a rise in non-performing loan (NPL) transactions, as non- performing commercial real estate loans increased to approximately EUR10 billion in 2024, the highest level in a decade. At the same time, banks face growing regulatory pressure to dispose of distressed portfolios rather than pursue renewal or restructuring strategies. German institutional investors continue to dominate core and core-plus strategies, particularly in multi - family housing and infrastructure. In parallel, cross- border investors remain active in logistics, infrastruc - ture, and alternative sectors, with growing exposure to
residential and digital assets reflecting broader shifts in investor priorities. A defining feature of the German PERE landscape is the widespread use of operating partner models. Private equity firms, especially international entrants, frequently collaborate with local operating partners who provide essential expertise in asset management, leasing, development, and regulatory navigation. This approach is particularly prevalent in residential real estate, where detailed market knowledge, technical expertise, and tenant engagement are critical. It is also gaining prominence in the data centre sector, where local partners are instrumental in site acquisi - tion, securing power supply, and managing technical and tenant requirements. These partnerships enable private equity investors to scale efficiently while miti - gating operational risk in an unfamiliar market. Investment targets: data centres and residential real estate Data centres: a high-growth sector with increasing greenfield activity Demand for data centre investments in Germany has risen sharply, driven by the expansion of cloud com - puting, artificial intelligence, and digitalisation. Frank - furt has established itself as one of Europe’s leading data centre hubs, with Munich and Berlin emerging as important secondary markets. A notable trend is the increase in greenfield development, as suitable existing assets in prime locations become scarcer and investors seek purpose-built facilities capable of meeting hyperscaler requirements and evolving tech - nical standards. This trend towards greenfield development is further influenced by the revised EU FDI Screening Regu - lation adopted in April 2025. The reform expanded foreign direct investment screening to include green - field investments in advanced technologies, such as artificial intelligence, quantum computing, and semi - conductors, as well as critical infrastructure. This has introduced an additional layer of regulatory complexity for international sponsors pursuing ground-up pro - jects. Legal considerations remain central to data centre investments, particularly in relation to zoning under
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