Loans to German property developers: how they work

Land charge, rank, loan-to-value, repayment from sales and what happens in a failure: how a private loan to a developer is built.

Lending to a property developer has become a visible product: a developer needs money for a project and borrows from private lenders, often for a short term and at a high stated interest rate, with a land charge on the property as security. For a lender abroad it can look simple: lend, collect interest, get the money back. In practice the loan sits in a capital structure with other claims on the same asset, and the security only works if it is registered in the right rank and can be enforced. This guide explains how such a loan is built, what the security gives you, what happens when a project fails, and what the rate on offer is telling you. It is information, not legal, tax or investment advice, and money lent this way is at risk: it can be lost in part or in full.

Why developers borrow from private lenders

A German project developer usually funds a scheme in layers: equity, bank debt and, where the bank stops, something in between. According to the Mezzanine-Report as cited in the trade press, equity in project developments is often only 5 to 10 percent of total cost, which means debt of roughly 90 to 95 percent of cost across all layers. Banks cover only part of that, and the rest is filled by mezzanine and other subordinated money or by private loans.

Private loans are also used for short stretches: buying a plot quickly, bridging until a permit arrives, or carrying a project until pre-sales unlock a bank facility. A developer who turns to private lenders is therefore often one whose bank has already said it will lend no more. That is not a reason to refuse. It is a reason to ask which layer your money sits in and why the cheaper layers were not enough.

Senior, junior, mezzanine: where your money sits

The same project can carry several kinds of money, and the label decides what you get when things go wrong.

Senior bank loan: first charge on the plot, first to be paid from the property.
Junior secured loan: also secured by a land charge, but in a lower rank, so it is paid only from what remains after the charges ahead of it.
Mezzanine or subordinated loan: ranks between equity and senior debt. In an insolvency, claims from mezzanine capital are met only after the senior creditors have been paid. Often it has no land charge at all, only a contractual subordination.

The legal label matters beyond ranking. A loan with a qualified subordination (a Nachrangdarlehen) is treated under German law as an asset investment under the Vermögensanlagengesetz, and a public offer of it generally needs a prospectus. A plain secured loan is a different animal. I found no threshold or exemption written specifically for developer loans, so which regime applies to a given offer is a question for a lawyer, not for the marketing page.

The security: Grundschuld

The usual security is a Grundschuld, a land charge entered in the Grundbuch (the land register) against the plot. It is created by notarial deed and exists only once it is registered. Three points shape what it is worth.

It is abstract. In practice it is a security land charge (Sicherungsgrundschuld): a separate security agreement (Sicherungsabrede) says which claims it secures. If the loan was never actually paid out, the owner can raise an objection from that agreement.
By itself it gives a claim to tolerate enforcement, not a ready enforcement title. To enforce without a lawsuit, the borrower normally signs a notarial submission to immediate enforcement (section 794(1) no. 5 of the code of civil procedure), usually in the same deed. Check that it exists, that it also binds the owner of the plot, and that it covers principal and interest.
It attaches to the plot and what stands on it, not to the developer's other assets. Developers often use a project company set up for the scheme, so the personal claim against the borrower can be worth little if the plot is worth less than the debt.

Rank and loan-to-value

Charges are paid in the order of their rank, which follows registration. A prior charge can step back behind yours only through a registered rank-back (section 880 of the civil code), and it must be notarised and entered. So the first question is always: what stands ahead of me today, and what can be entered ahead of me later?

The second is loan-to-value: your loan plus all charges ahead of it, divided by the value of the plot. Which value? A market value (Verkehrswert) and a lending value (Beleihungswert) are different things. The lending value is set cautiously and lies below market value; the 60 percent figure people quote belongs to the covered-bond rules and is not a general cap on bank lending. For a plot with a half-built house the gap between "value as it stands" and "value when finished" can be enormous, and a half-finished building can be worth less than it cost. Ask for the value as is, and for the value as completed, and who produced each.

How you get repaid

A short developer loan is repaid from one of three things: the sale of the units one by one, the sale of the whole scheme, or a refinancing by a bank once the building is finished and let or sold. Each depends on the market and on a third party's decision, and on a 12-month loan a delay of a few months is the normal risk, not the unusual one. Extensions come with extra interest, but they also tell you the plan slipped.

When units are sold one by one, buyers will insist that their unit is released from your charge. Rules protecting buyers' advance payments (sections 3 and 7 of the Makler- und Bauträgerverordnung, the construction-developer regulation, which the Federal Court of Justice treats as protective statutes) are built around the buyer's security, not the lender's. Read how the release of sold units works in your documents and who receives the buyers' money.

When a project fails

If the borrower becomes insolvent, a creditor holding a land charge has a right to separate satisfaction (section 49 of the insolvency code): you do not queue with ordinary creditors, but you also cannot simply take the property. The property is realised through a forced sale or forced administration under the Zwangsversteigerungsgesetz.

In a forced sale the proceeds are paid by rank. If an insolvency administrator has been appointed, a flat charge of four percent of the fixed value is taken first (rank 1a). Certain public charges, such as property tax arrears, come before registered rights, and the charges are then paid in order. According to one secondary summary, interest is protected only for the current period plus the two previous years, so long-running interest can fall outside your rank. The court also tests the bid against the fixed value: a bid below half of that value is refused by the court on its own motion, and below 70 percent it is refused on the application of an entitled party; the new date is normally three to six months later.

I did not find a reliable statistic for how long a forced sale takes or what it typically yields against the appraisal. Plan on many months and on proceeds that can fall short of the valuation. Unpaid contractors add pressure: the civil code gives them a claim to a security mortgage on the plot (section 650e), which usually ranks behind charges already registered, but contractors who are not paid stop work, and a stopped site is worth less. Anything the sale does not cover remains a claim against the borrower, which is only as good as the borrower's other assets or any guarantee.

How projects go wrong in practice

Permit or planning delay, so the loan matures before the project is ready to sell.
Cost overrun with no money left to finish.
Sales slower than modelled, so the exit does not repay the debt.
A bank that does not refinance at the end of the term.
A senior lender who enforces first.
Insolvency of the developer.

The market context is hard. A Prognos study reported in the trade press counted 1,414 developer insolvencies in Germany between 2018 and 2025, rising clearly since 2023, with a broader definition than the Federal Statistical Office uses. The Bauherren-Schutzbund counted 1,230 developers and project developers filing between 2023 and 2025, and in the first five months of 2026 construction had 44.0 insolvencies per 10,000 companies against 29.8 across the whole economy. These are secondary reports and the definitions differ, but the direction is clear.

What a non-resident lender needs to know

Three questions sit outside the loan itself, and none of them was answered by what I found.

Licensing. Lending money commercially in Germany needs a licence from the financial regulator under section 32 of the Banking Act. A court has held that the duty can arise when an offer from abroad is aimed at the German market. Whether one private lender, or the intermediary selling the loan, is caught depends on whether the activity is commercial. Ask a lawyer.
Tax. For a non-resident, interest on a loan secured by German real estate is treated as German-source income under section 49(1) no. 5 c of the income tax act, according to a Federal Fiscal Court judgment. Treaty relief, filing and tax in your country of residence are separate questions for a tax adviser in each country.
Source of funds. Notaries and banks will ask where the money comes from; see bank checks for Russian citizens living in the EU.

What the rate is telling you

A senior bank loan with a low loan-to-value is priced far below a junior or mezzanine position. One report puts the international standard for mezzanine capital at a return of 15 percent or more. A headline rate such as 12 percent a year on a 12-month loan is the kind of figure these offers advertise. Treat it as pricing for risk, not as income. A high advertised rate is itself a risk signal: it can mean that the borrower could not get cheaper money, or that the position you are offered is weak. Always compare the rate with the layer you are in.

The checks to run before you lend are collected in the due diligence checklist for lending to a German developer. For the wider market picture see investment risks in German property and mortgages for foreigners in Germany.

How we help

We can show you the documents and terms of the financing projects we work with: the land-register extract, the rank and loan-to-value, the security agreement and the exit plan, so you can take them to your own lawyer. We do not promise or quote returns, and we do not give legal, tax or investment advice.

Lending to German property developers: how a private loan works and where the risk sits