Tzido/Depositphotos.com
When REFIRE covered the launch of BF.Capital’s Private Debt Market Compass in February, the picture was one of measured confidence. Its inaugural reading stood at 60.1 out of 100, fundraising expectations were improving and most managers reported stable non-performing loan ratios. Six months later, new evidence points in the same direction, while showing more clearly what private capital now demands before financing a German property project. (Read more about it here.)
Pegasus Capital Partners’ Private Debt Report 2026 describes strong demand for mezzanine and whole loans meeting an “extremely limited” supply of finance. Enquiries received by Pegasus reached a record in the first half of 2025 and, although they subsequently declined, remained near the higher levels of the previous two years into early 2026.
Those figures measure approaches to one financing provider, not completed lending across the market. The accompanying survey covers only 35 developers, banks, investors and family offices and is expressly non-representative. Pegasus, which provides mezzanine and equity-substitute capital itself, is also not a disinterested observer. Even so, its findings offer a useful view of where demand is concentrated and the terms on which finance remains available.
The central message is not that private debt is replacing German banks. Almost 70% of the developers surveyed favour combining a senior loan with mezzanine capital, while around 30% prefer a whole loan from a single provider. Banks are not necessarily hostile to the first model: more than 40% of the banks surveyed view senior-plus-mezzanine structures positively and another 50% neutrally, provided subordination, intercreditor arrangements and risk-sharing are clear.
Private debt is therefore broadening the financing system rather than overturning it. It fills the portion of the capital stack that banks are unwilling to provide on conventional terms, or offers an entire loan where flexibility and speed justify the additional cost.
More capital, on harder terms
The return expectations reported by Pegasus show how sharply that cost varies. Surveyed investors generally seek 4–6% from senior loans, 7–9% from whole loans and 12–15% from mezzanine. Family offices questioned for the report typically target 10–12% from mezzanine strategies, favouring residential property and relatively short terms of one to four years.
These are expected investor returns rather than observed coupons on completed loans, and the categories are not directly comparable in every case. They nevertheless illustrate an important point: there is no single private-debt premium. The price depends on seniority, leverage, security, the borrower and what must happen to the property before the loan can be repaid.
Sector selection is equally pronounced. Developers surveyed by Pegasus favour residential property, student accommodation and micro-living, where Germany’s shortage of housing provides a supportive demand argument. Offices present a more divided market. Modern, energy-efficient buildings in strong locations can still secure finance; older properties in peripheral locations face weaker occupational demand, greater capital expenditure and more difficult refinancing. Pegasus expects offices and selected retail assets to account for a disproportionate share of the remaining financing gap.
Scarcity of finance should not be confused with weak lending discipline. Higher sponsor equity, tighter covenants and closer monitoring are becoming more important, alongside cash sweeps, liquidity reserves and lender step-in rights. Whole loans and stretched-senior finance may be available only for the strongest properties and borrowers.
“The era of high debt leverage and virtually unlimited liquidity is over for the time being,” the report concludes. That may sound unremarkable after four years of property distress, but it explains why high demand for private finance does not automatically translate into higher lending volumes. Many projects need capital; fewer can support its present cost or satisfy the conditions attached to it.
International platforms are entering the gap with capital raised outside Germany, including interest from UK investors in German whole loans and mezzanine. But they bring their own expectations: risk-adjusted margins, more frequent reporting, stronger contractual protections and, in some cases, rights of recourse less familiar in traditional German property structures.
“The days of lending and waiting for repayment are definitely a thing of the past,” writes Pegasus managing director Martin Führlein. The modern private lender is expected not merely to provide money, but to monitor the business plan and intervene when it departs from course. For borrowers, flexibility at origination may therefore come with closer supervision throughout the loan.
Growth brings closer scrutiny
Private debt’s expansion is also attracting regulatory attention. BaFin estimates that private debt funds now manage approximately €2.5tn worldwide. Although still small relative to the global financial system, the regulator warns that their growing connections with banks and insurers could allow losses to spread beyond individual funds. BaFin president Mark Branson says supervisors—and particularly the European Central Bank—“must scrutinise this very closely”.
BF.Capital managing director Eugenio Sangermano argues that some of the resulting criticism is “too undifferentiated” and risks presenting a distorted picture of the asset class. Many recent concerns, he notes, relate to leveraged, publicly traded US Business Development Companies rather than the closed-ended funds with long-term committed capital more commonly held by European institutions. That distinction does not remove the underlying credit risk, but it does matter when assessing where leverage, liquidity pressure and contagion could emerge.
BaFin’s concerns extend far beyond German real estate lending. They are nevertheless a reminder that moving credit away from bank balance sheets does not make the underlying risks disappear. It changes who holds them, how transparently they are valued and what happens when borrowers cannot repay.
REFIRE: The Pegasus evidence does not prove that private debt has resolved Germany’s property financing shortage. Its enquiry figures measure demand rather than completed transactions, while its small survey captures sentiment rather than the market as a whole. What it does show is how the financing system is adapting.
Private lenders are not winning business by ignoring the risks that make banks cautious. They are accepting selected risks, charging more for them and demanding greater control in return. The result is a broader financing market, but not an easier one. Capital is available for viable projects and credible sponsors; for everything else, the existence of a financing gap does not mean someone is willing to fill it.