Real estate sector - strategies for the upheaval

A turnaround in interest rates, falling valuations and more difficult financing are having a lsting impact on the real estate sector. This article explains the structural causes behind the current situation - and which measures can help to stabilize affected companies.

Challenges in a changed Market ENvironment 

The German real estate sector has been in a persistently difficult situation since 2022. The significant rise in financing costs as a result of the interest rate turnaround has been accompanied by a decline in transaction activity and a noticeable correction in property calculations. According to current markets analyses, the transaction volume for commercial properties in Germany has fallen by more than 70% compared to the peal in 2021. As a result of lower market values, lending limits are falling making follow-up financing more difficult

Many companies have come under pressure not as a result of a slump in demand, but due to the changed framework conditions on the financing side.

Simultaneously, sharp increases in construction costs and ongoing delays in project processes are putting pressure on the liquidity of many companies. In combination with more restrictive lending, the pressure on the developers, portfolio holders and investors is increasing considerably. According to AEW Research, financing requirement in Europe will amount to over € 560 billion by 2027 - a large proportion of these loans were concluded during the low-interest phase and must now be restructured at changed conditions.

Cause of internal Company crisis dynamics 

In addiction to external factors, internal company burdens also frequently arise. These include, in particular, incomplete project ,management, liquidity planning that has not been updated or inadequate commercial assessment of construction progress. A lack of links between construction progress and business management often acts as a crisis accelerator.

In many cases, the plan was to secure ongoing projects through property sales or refinancing. However, the market situation means that planned sales often cannot be realized or can only be realized at a considerable discount. At the same time, additional requirements in the area of ESG are acting as costs and investment drivers, particularly for older existing properties.

Restructuring as a structured approach 

Against this backdrop, structured restructuring processes are becoming increasingly important. They enable operational weaknesses to be identified, liquidity risks to be managed and financing solutions to be put on a sound footing. In practice, a multi-stage approach has proven its worth: First, an independent assessment of the company's situation is carried out by an Independent Business Review (IBR) with precise liquidity planning. This serves as the basis for communication with investors, financiers and shareholders.

Companies that enter into talks with investors with clear restructuring plan and valid figures secure decisive leeway. 

At the same time, it is advisable to set up an efficient project controlling system that makes deviations from the plan visible at an early stage and keeps them manageable. A structured assessment of technical, scheduling and financial risks is essential. Supplemented by cost and portfolio management measures, a viable restructuring concept can be implemented in a targeted manner.

Experiences from Practice

In a recent case study, an extended liquidity model and targeted bank negotiations led to a prolongation and an increase in financing of € 6.5 million. The starting point was a project with mixed use (hotel, office, commercial) and significantly increases construction costs.

In another case, the introduction of end-to-end project controlling at a project developer with an international portfolio led to a stabilized liquidity situation and a positive restructuring statement.

These cases show: even in a challenging marked environment stability is achievable - if professional and forward-looking action is taken.

The conclusion: Analyse strenghs & use scope 

The current situation in the real estate sector requires differentiated analysis and targeted action. Companies that question their structures at an early stage, realistically assess their financing costs and identify operational levers create stability and future security. 

Restructuring is not just a reaction to crises - it is an active contribution to realignment in a changed market environment.