macondoso on Envato / REFIRE
From what REFIRE understands, the volume of non-performing loans held by Germany's 27 largest banking groups has soared to a new five-year high of €46.6bn, up fully 55% since the interest rate turnaround in 2022. The commercial real estate sector has been particularly hard hit, with the volume of NPLs tripling in three years. We have been tracking the sector ourselves, quite comprehensively.
So we’re baffled as to how come the banks have been reporting record results for 2024, although risk provisions are rising so steeply? We ask, because it's clear that what we’re witnessing is not a crash—but a kind of financial stasis. At a recent panel discussion in Berlin, organised by RUECKERCONSULT and attended by REFIRE, it became clearer that the reckoning is not being avoided. It’s simply being deferred.
The problem, as panellists with decades of experience in credit restructuring and workout management made plain, is not a shortage of capital. Nor is it a lack of demand for distressed assets. It’s a marketwide reluctance to mark losses, face up to legacy pricing assumptions, and unwind the tangled knots of financing structures that now dominate German real estate.
“There is a wave in the balance sheets,” observed Dr. Ruprecht Hellauer of Albulus Credit. “But very little of it has reached the market.” The implication: what’s coming is not a liquidity crisis but a transparency one. For now, lenders are holding on, borrowers are buying time, and restructuring is being used as a means to postpone recognition of failure.
This is not 2008. The clean-up playbook is less clear. As Annette Benner of Nova Fides reminded the audience, “Back then, loans were fungible and designed for securitisation. Today, every asset is bespoke, every lender syndicate is overgrown, and every problem is specific.” The infrastructure that once enabled bulk deleveraging simply doesn’t exist this time around.
Even where banks might want to act, many are institutionally paralysed. As René Doeubler of Drees & Sommer pointed out, internal politics and credit legacy play a surprisingly large role: "There’s always a personal angle. Someone made the original call to finance a project, and admitting the need for write-downs is still politically toxic within many banks.”
Some lenders are hoping that recent improvements in Euribor and stabilised residential pricing will keep distress from spreading further. But as CR Investment’s Torsten Hollstein put it, “The parameters no longer fit. The fundamentals that supported many of these financings are obsolete.”
So, where one might expect rapid restructuring, there is instead a widespread inclination to delay. Banks are reluctant to pull the plug, in part due to reputational sensitivities and intra-institutional politics. “You don’t want to be the one who admits the mistake,” noted Doeubler. In many cases, the act of restructuring is as much psychological as it is financial.
What regulation doesn’t block, compliance inertia often does. Hollstein recounted cases where otherwise viable investments have been reclassified as distressed purely due to rigid LTV or ICR thresholds. “We are destroying functioning assets with our own rules,” he warned.
Clear signs of demand - but buyers are being sidelined
And yet, there is demand—for the right assets at the right discount. Family offices, private equity, and foreign capital are circling. But the market’s structural limitations— fragmented capital stacks, cumbersome licensing requirements, and the absence of a genuine secondary market—are keeping them sidelined. “The capital is ready,” said Hellauer, “but many buyers are waiting for clearer pricing signals.”
What’s emerging instead are hybrid solutions: trustee structures, off-balance-sheet servicing arrangements, and specialist asset managers stepping in to mediate. “Sometimes it’s just couples therapy,” said Hollstein. When borrower-lender relationships break down, neutrality is often more valuable than brute capital.
There’s little consensus on which type of distress is most urgent. Stalled project developments—especially those stuck mid-construction—are clearly visible to anyone cycling past Germany's half-built skeletons. But risks are also growing in mature portfolios, especially where follow-up financing now depends on capex-heavy renovation plans that no longer make financial sense.
Benner added a crucial distinction: not all stalled projects are equal. “Some are near completion and can be salvaged. Others have barely broken ground or are missing permits. Each of these demands a different approach—and a different appetite for risk.”
For now, opportunistic capital is circling, but uncertain how to price the risk. As Doeubler noted, UK-based capital in particular remains on the sidelines: "They’re here, but the price expectations haven’t aligned yet.” Meanwhile, local developers with capital backing are beginning to position for selective plays, especially where deals can be completed off-market.
The panellists were clearly expecting this cycle to stretch deep into the decade. Hellauer cited non-performing loans from 2008 still being resolved 15 years later. Hollstein estimates the current refinancing shortfall in Germany runs into the double-digit billions. Once pricing benchmarks reset through forced sales, transaction volumes will rise. But until then, market activity will remain sporadic and uneven. As one panellist put it bluntly, “We’re not in a moment of panic. We’re in a moment of paralysis.”
For institutional investors, the implications are sobering. There will be no fire sale moment—just a grinding revaluation of what assets are worth in a structurally higher-rate, more capital-constrained world. The best opportunities will be opaque, slow-moving, and labour-intensive. As Benner put it bluntly: “Act early. Don’t wait until your options are gone.”
Germany’s distress cycle won’t arrive as a thunderclap. Instead, it’s likely to seep slowly through the cracks—one broken syndicate, one failed refinancing, one unfinished shell at a time. When it finally becomes visible, it won’t look like panic. It will look like a backlog.