Real estate industry faces mounting refinancing challenges as 2026 peak approaches
The real estate industry is facing a mounting challenge with follow-up financing as many companies struggle to refinance loans obtained during the era of low interest rates. During the property boom, securing loans for real estate projects was straightforward, but the current conditions have shifted dramatically, creating a more difficult landscape for refinancing. This is exacerbated by falling loan-to-value (LTV) ratios and declining property values, leading to a shrinking pool of follow-up loans.
During a recent online panel hosted by RUECKERCONSULT, Prof. Dr. Felix Schindler, Head of Research & Strategy at HIH Invest, outlined the impact of this shift. Using a case study, he demonstrated how a €100 million office property financed in 2020 at a 65% LTV ratio would now only be valued at €80 million due to a 20% price correction. If the LTV is further reduced to 55%, the loan amount would drop from €65 million to €44 million. This €21 million shortfall must be covered by additional equity, which is becoming increasingly scarce. This, combined with tripling interest costs, is pushing many real estate portfolios into a precarious financial position.
The situation is particularly dire for office and retail properties, which are expected to face the largest refinancing gaps, with a peak in 2026. Schindler estimates that the total gap for the German commercial investment market will reach €20 billion between 2024 and 2028. In contrast, logistics and residential properties are faring better in the current market.
Experts participating in the panel, including Ingo Glaeser of Münchener Hypothekenbank, Francesco Fedele, CEO of BF.direkt AG, and Torsten Hollstein, Managing Director of CR Investment Management, agreed that early action by borrowers is crucial to navigating these challenges. Professional asset management and early engagement with financiers are necessary to secure follow-up financing under tougher conditions. However, with many banks reducing exposure to office properties, borrowers may find it increasingly difficult to secure favorable terms.
Fresh equity is often required for refinancing due to reduced LTV ratios, and this additional capital frequently comes from external sources such as private equity funds or joint ventures. The panel noted that institutional investors are sometimes retaining capital earmarked for distributions to bolster equity reserves.
The role of debt funds in filling the refinancing gap was a topic of debate among the panelists. While some, like Hollstein and Fedele, see debt funds as an important player in the market, others like Glaeser are more cautious, arguing that the higher interest rates demanded by these funds may not be sustainable in the long term.
Despite the challenges, panelists agreed that financiers are reluctant to force real estate liquidations in the current environment, preferring to seek cooperative solutions with borrowers. This has so far prevented a wave of distressed asset sales, although market participants are preparing for potential loan sales to create capacity for new business.
The general consensus among experts is that while the real estate sector may not face the dramatic downturn seen in other markets, the challenges posed by follow-up financing will persist, leading to a prolonged period of financial strain for many in the industry.
Photos: Prof. Dr. Felix Schindler, Head of Research & Strategy at HIH Invest, Francesco Fedele, CEO of BF.direkt AG, Torsten Hollstein, Managing Director of CR Investment Management and Ingo Glaeser of Münchener Hypothekenbank