Real Estate Debt Between Return Targets and Risk Management Priorities

Düsseldorf/Wiesbaden, 30 September 2026

Real Estate Debt is a growth market in Germany. This is confirmed by a study on the investment behavior of institutional investors conducted by Hochschule RheinMain in cooperation with CAERUS Debt Investments AG. A total of 54 decision-makers participated, including representatives from pension schemes, credit institutions, insurance companies, pension funds, and family offices. While Real Estate Debt currently accounts for only a small share of most institutional investors’ portfolios, around one-third of respondents intend to increase their allocations in the future. At present, this asset class represents an average of 1.6% of total portfolio allocations. 

One-third of respondents plan to increase their investments

Those intending to expand their activities over the next one to three years consistently cited investment volumes of more than €75 million. In contrast, 41% do not plan to make new investments in this asset class, while just over one-quarter remain undecided. The study authors, led by Professor Dr. Bernd Wieberneit, Professor of Real Estate Investment and Asset Management at Hochschule RheinMain in Wiesbaden, and Patrick Mutt, forecast the implications for the coming 36 months. Under pessimistic assumptions, new investment volume in the Real Estate Debt market across the DACH region could amount to approximately €1.1 billion; under a realistic scenario, around €2.3 billion; and under an optimistic scenario, approximately €3.7 billion. 

The key driver is the risk-return profile

When asked about their motivation for investing in Real Estate Debt, respondents identified the balanced risk-return profile as the most important factor (4.31 out of 5 possible points). “An allocation to Real Estate Debt offers, similar to a core investment, a secured cash flow profile, low volatility, and a low correlation with other asset classes such as bond and equity markets. From a return perspective, senior secured real estate loans achieve or even exceed the returns of higher-risk asset classes such as high-yield corporate bonds, while offering lower risk due to collateralization,” the study states. Following the risk-return profile, the second most important motivation for investing in Real Estate Debt is the strong demand for debt capital resulting directly from the financing gap in the property market. On a scale from one (“insignificant driver”) to five (“main driver”), respondents assigned this factor a score of 4.0. According to the study results, investors prefer whole loans as the capital structure for originated loans. On average, participants expect a gross IRR of 8.0% per annum and accept a median loan-to-value ratio of 70.0%. The dilemma is that the required returns can hardly be achieved through core real estate assets. Such return expectations typically require investments with a higher risk profile, such as value-add repositioning projects or pre-let development projects, where project returns can support a higher cost of debt financing. 

Back leverage is still viewed with caution

One way to achieve the required returns without taking additional property-level risk is the use of leverage at the fund level, commonly referred to as back leverage. However, respondents remain noticeably cautious toward this approach. Only 12% currently employ back leverage, while a further 3% plan to implement it. In contrast, 67% do not intend to use it in the coming years. The primary concern cited is the increase in risk associated with leverage (37% of respondents). In addition, participants noted that the market for such structures is not yet sufficiently mature and lacks widely established standards (19%). Others pointed to the complexity of these structures and the additional reporting requirements involved (13%). “The preference for senior structures, the current disproportionate pricing of risk, and the reluctance to use fund-level leverage all confirm that security and portfolio resilience remain the highest priorities in investment decisions,” says Markus Kreuter, COO of CAERUS Debt Investments. “At the same time, achieving the return levels sought by investors is extremely difficult with conservative standing asset financings in the current market environment. Supply and demand are therefore not yet aligned.” As a potential solution, 60% of respondents are considering financing development projects. Another alternative may be to address investors’ reservations about back leverage through appropriately structured solutions. From a demand perspective, Real Estate Debt in Germany therefore continues to serve primarily as a complement to traditional bank financing. “Real Estate Debt comes into play ideally when a property only narrowly falls outside the financing criteria of traditional banks. This may relate to loan-to-value constraints or cases where a property requires transformation and ESG-driven repositioning, faces a leasing challenge, or is undergoing a change of use,” says Matthias Thomas, Business Development & Client Relationships, CAERUS Debt Investments AG.