EMPIRA Research: Private Debt – An Alternative Solution for Property Financing

The real estate market is undergoing profound upheaval. After a long period of extremely low interest rates and generous lending policies, banks became increasingly restrictive, adapting their lending to higher policy rates and tougher regulatory requirements. Although the interest rate situation has now eased somewhat, current interest rate levels are resulting in significant funding gaps in many sub-markets, with conventional loan structures no longer able to fully cover demand. 

For investors and project developers, this creates a tension between rising capital costs, heightened risk awareness, and the simultaneous need to continue ongoing projects or realize new ones. 

In this situation, attention is turning to private debt instruments. As an alternative financing solution, they offer both greater flexibility and more individualized conditions that respond to the specific needs of a changing market. That begs the question of what return potential private debt offers and what risks investors need to take into account – especially amid a more complex macroeconomic environment and increasing regulation. This makes systematic risk management key to maximizing the opportunities posed by these alternative forms of debt capital. 

Against this backdrop, this study seeks to analyze the current situation in real estate financing and to assess the importance of private debt as a key element in future capital supply. It first examines the current market environment and the drivers behind the funding gap. Next, it considers the role of private debt as an alternative source of capital, going on to identify specific opportunities and areas of action for private debt investors. Finally, a summary brings together the main findings and outlines implications for future developments in real estate financing.