Composite by REFIRE
As the real estate industry gathers in Munich this week for Expo REAL, one theme is likely to dominate the side conversations: how banks' ESG risk assessments are killing deals that would have closed 18 months ago. Asset managers and developers admit it is keeping them awake at night. In a recent RUECKERCONSULT survey, 88% reported significantly lower transaction activity over the past five years, with 80% citing tightened sustainability requirements as the main driver. For investors, the implication is stark: portfolios that fail ESG tests risk becoming unfinanceable long before they become unsellable.
The scale of disruption was laid bare at a recent RUECKERCONSULT webinar, attended by REFIRE. "Banking supervision and the ECB have made ESG risk a major priority and are continuously tightening regulations," warned Jochen Schenk, consultant and former chairman of Real I.S. Group. "Property owners who are unable to demonstrate that their portfolios are sustainable in the near future will face considerable difficulties in obtaining refinancing."
Prof. Dr. Michela Lambertz of TH Köln added: "Politicians may slow the timeline, but sustainability remains a prerequisite for financing approvals, and this must be made measurable." Carl Fay, managing director of Fay Projects, summed up the market reality: "The transaction market is blocked. The value creation strategy is more focused on developing portfolios. The pressure to act is high. The challenges are structural."
The problem is already visible in refinancing. One investor accepted a rate jump from 2% to 7% on two shopping centres. Then the bank demanded energy upgrades to be funded from equity rather than debt, scuppering the deal. "It is not entirely unlikely that the bank will end up being handed the keys and having to look for a new sponsor," said Oliver Platt of lawyers KUCERA. A "bit of equity capital will be destroyed," he added with understatement.
More precision tools being used to evaluate data
BaFin chief Mark Branson has warned that institutions underestimate property vulnerability to both regulation and climate events. "Many people think that because Brussels is easing reporting requirements, the banks see it the same way—but that's not the case. Because the banks are controlled by the ECB and BaFin," said Michael Fesselmann of Green Lion Consulting. BayernLB now uses address-specific climate data from Munich Re to test whether flooding, heat or sea-level rise could impair debt service. "We are evaluating our entire financing portfolio with this tool," said ESG expert Bianca Reinhardt. Helaba’s Tamara Weiss underlined the importance of precision: "When the Hudson River overflowed in New York, some buildings were flooded while others a few blocks away remained unscathed. It's the same in Frankfurt—location and elevation decide outcomes."
Banks themselves are divided on how to price ESG risk. Helaba offers small rate bonuses for energy-efficient buildings: "With a €100 million loan, even a few basis points matter," Weiss said. Hamburg Commercial Bank takes the opposite stance. Without capital relief for green lending, "any discount would be at the expense of our margin," said Stefan Hoenen. He argued that risk premiums make little sense for low-probability, high-loss events. Bernhard Gruber, CEO of Climcycle, disagrees: "Risk management means pricing climate risks correctly across the portfolio—and that isn't happening at most banks." Unlike the UK or France, where regulators allow lower capital charges on green loans, German banks are left to improvise with stricter repayment schedules, lower LTVs or higher capex demands.
For asset managers, the impact is structural. The RUECKERCONSULT survey found 56% have missed sales targets over five years, while 96% now prioritise modernisation or conversion rather than sales. "There will no longer be many extensions of credit lines. Sitting it out and hoping the market recovers is no longer possible," Schenk warned.
Borrowers are adapting with creative fixes. For example, fund manager Advenis, under pressure to move an asset from energy class E to D, opted for cheaper measures—smart meters, LED lighting, and renewable electricity - instead of a costly façade overhaul. This shows how even small fixes are now becoming credit conditions, inseparable from financing decisions.
REFIRE: ESG is no longer a reporting exercise but a gatekeeper to capital. Banks are embedding climate and energy risks into every refinancing decision, and German landlords who delay upgrades risk finding their portfolios unfinanceable. Waiting it out for the storm to pass is not an option.