Debt funds move further centre stage as banks pull back

German banks are retreating more deeply from real estate lending than many investors yet appreciate. At last week's Rueckerconsult INVESTMENT Expo in Berlin, Frederik Bräkling of Pax-Bank described a market where development finance at 50% LTV has become standard, second prolongations are increasingly common, and non-performing loan management is consuming internal resources that would once have supported new lending activity. Banks, he suggested, are being "almost forced" by regulatory pressure under Basel and CRD frameworks to create the opening for debt funds themselves.

The implication is that the shift currently under way in European real estate finance is structural rather than cyclical. Borrower-side data from the CREMI index, published this week, points in the same direction. Senior loan spreads in European commercial real estate have nearly tripled since early 2024, while banks are pricing senior debt at average leverage levels of roughly 53% LTV — conservative territory by the standards of the previous cycle.

That environment is creating space for non-bank lenders to expand far beyond the opportunistic role debt funds occupied after the Global Financial Crisis. Increasingly, debt managers are positioning themselves as part of the permanent financing architecture of the European property market.