The end of the illusion - Germany faces its long reckoning

This is REFIRE’s 250th issue, arriving at a moment when the German real estate market is being told, bluntly, that it faces an L-shaped decade. Milestones rarely coincide so neatly with market reality. When Michael Morgenroth of CAERUS Debt Investments ended his recent remarks in Frankfurt with a wish for “more optimism in the German market”, it resonated because the rest of his analysis is so stark. The losses embedded in the system, he argues, cannot be disguised with new debt or fresh equity. They have to be cut off.

And yet here we are — still reporting on an industry doing the unglamorous work of confronting its excesses. Persistence matters, not ours specifically, but the market’s capacity to work through rather than around its problems. Germany is entering a long reset, not a crisis. That distinction shapes everything in this current issue of REFIRE.

Twenty years is a long time to focus on a single market. REFIRE’s two decades correspond almost exactly with what might be called the modern era of German real estate professionalisation — the period when foreign capital arrived from 2005 with evangelical zeal, certain it could teach Germany how to make money in property. The irony is that many of the structures now being unwound — the leverage, the complex stacks, what Morgenroth dismisses as “mezzanine through the back door” — took root in that moment.

But pattern recognition helps. Before REFIRE existed, Jürgen Schneider’s pyramid scheme unravelled — a spectacle eerily reminiscent of SIGNA’s recent implosion. The schemes that collapsed after reunification, when Eastern property became the casino for Western capital, offered early lessons in euphoria and reckoning. Then came 2008–2010, when it genuinely felt as though the world might end. We documented the long recovery that morphed into the zero-rate era, when developers and investors convinced themselves of their own genius, using other people’s money. We were here through COVID, when isolation reshaped society and demolished the office market almost overnight.

None of this is unprecedented. What matters now is who adapts, and how.

Today’s professionals are giving their answer. Banks have stopped pretending time will solve the problem. EY’s latest findings show refinancing risk now eclipses valuation concerns. Lenders are selective, disciplined and under little pressure to extend credit to projects that no longer stack up. “Amend and extend” is fading; tougher solutions are gaining ground. In practice, this means sharper pricing, stricter underwriting and fewer patience-based restructurings.

Debt funds, now a structural part of the system, are filling gaps - but not rescuing broken deals. As several articles in this issue make clear, capital IS available, but only on terms that reflect real risk. Whole loans and stretched-senior structures have become the standard tools of the cycle because they consolidate control and match the new reality of higher refinancing costs and repriced land. International capital stands ready to deploy, but Germany cannot yet supply the large, clean pipelines those investors want. The liquidity window will not stay open indefinitely.

Meanwhile, the NPL narrative dividing conference slides from real-world behaviour remains unresolved. The feared tsunami has not materialised. Instead, distress is emerging in drip-feed fashion: half-viable offices with poor energy performance, industrial sites without new tenants, ageing assets edging into Stage 2 and then Stage 3 as leases expire.

Workout capacity is thin; many institutions have let their restructuring units atrophy over the past decade. What comes next will be granular, slow and highly operational - a long grind, rather than a single cathartic clearing event.

Germany’s broader challenge runs deeper still. Professor Hanspeter Gondring’s warning of an L-shaped stagnation through 2030 reflects more than cyclical weakness. Productivity is flat, investment momentum thin, and the country’s regulatory reflex - the instinct to over-engineer every solution - is now a material economic constraint, visible in permitting delays, construction paralysis and ESG bottlenecks.

But this is where conditional optimism is credible. As Gary Lineker once memorably observed: “Football is a simple game. Twenty-two men chase a ball for 90 minutes and at the end, the Germans always win.” It was funny because it was true. Germany’s competitiveness is not a policy; it is a reflex. Excessive regulation may be today’s bottleneck, but the same perfectionist streak eventually forces reform. The question is whether that arrives through design or through crisis.

Investors should be clear on one thing: the opportunities in the coming years will arise not from rebound optimism but from disciplined repricing. Assets bloated by the zero-rate illusion are returning to earth. Capital will flow towards those who can solve problems rather than postpone them. Lenders want viable business plans, not hopes. Developers must accept that “good enough, delivered” now beats “perfect, never finished”. Serial and modular construction, long resisted by regulatory orthodoxy, is finally becoming a realistic path to delivery.

REFIRE’s purpose in this environment is unchanged. Our role is to connect the professionals working through this reset with the global capital assessing where and when to re-engage. Independent reporting matters in periods like this because the mechanisms of adjustment - the restructurings, the repricings, the quiet shifts in lender behaviour - are often more important than the headlines. Our task is not nostalgia; it is explanation.

We have pioneered coverage of emerging segments before the consensus arrived — including our recent Fachtagung on Garagenparks, the first held in Germany. We have further surprises planned for 2026. But our mission is not scale. It is craft: informing the few thousand people genuinely focused on the German real estate market with more depth, more understanding, more explanation. That will keep us busy for years to come.

Issue #250 lands in the middle of a difficult adjustment. The refinancing wall is real. Regulatory tightening is accelerating. Not everyone will make it through. But professionalism tends to win in German real estate. Capital returns to markets that function — even if imperfectly — and Germany, for all its bureaucratic drag, retains strengths competitors envy: deep savings pools, technical competence, institutional stability and an industrial base that adapts rather than disappears.

We have covered this market for 250 issues because there has always been something worth covering. That remains true now. The work ahead will be slow, sober and exacting - which is precisely why the next phase will matter.