The Vision: Building a Community for All Generations
The developer’s goal was to create a vibrant, multi-generational living and working environment in a medium-sized Northern German city. Key features of the project included:
- Integrated Concept: A comprehensive development comprising a kindergarten, residential buildings, senior living facilities, and administrative offices, designed to foster community and accessibility for all ages.
- Sustainability at the Core: Designed to meet KfW 55 energy efficiency standards, ensuring alignment with ESG requirements.
- Long-Term Leases: Approximately 80% of the ~14,000 m² rentable space was pre-leased to highly creditworthy public and municipal tenants, providing a strong income base.
The project was divided into three phases over 30 months, with financing distributed as follows:
- Phase 1: €28 million (permit secured).
- Phase 2: €5 million (permit pending).
- Phase 3: €9 million (permit not yet filed but backed by lease negotiations).
This carefully planned development reflected a robust vision for community living combined with sustainability and financial stability.
The Developer: Experience Meets Innovation
The Challenge: Funding Gaps and Tight Timelines
Securing financing for the project wasn’t simple. The developer’s initial contribution covered only 10% of the total costs, leaving a large funding gap. Early-stage expenses were financed through a high-cost bridge loan, which needed to be refinanced urgently. Pandemic-related delays also inflated costs, putting additional strain on the budget.
Further complicating matters, the location’s D-rating and the developer’s limited real estate track record made it difficult to attract traditional mezzanine investors. Phases 2 and 3, still in the early planning stages, lacked the scale or maturity to appeal to capital markets.
To move forward, the project needed a financing solution that balanced flexibility, risk mitigation, and speed.
The Solution: Tailored Financing for a Complex Project
Rather than treating the project as a standard real estate development, PiHub repositioned it as a sustainable infrastructure initiative and streamlined the structure by bundling all three phases into a single financing package. These adjustments opened doors and made the project more appealing to lenders who prioritized ESG-compliant projects. The financing plan also included innovative solutions to manage risk and ensure flexibility:
- Rental income from pre-leased spaces was offered as collateral, providing a safety net in case of delays.
- Fixed loan term with staged repayment gave the developer breathing room to manage each phase.
- Lenders were granted control rights to step in if significant issues came up, reassuring investors while still preserving the developer’s ability to adapt the project over time.
Thanks to this strategic approach, PiHub secured €42 million in financing even before critical milestones, like Phase 2 permitting and Phase 3 land acquisition, were finalized.
Takeaways for Investors and Developers
This case study demonstrates that successful financing hinges on more than just project quality and developer experience. Strategic positioning and innovative structuring play a crucial role.
For lenders, the project highlights the importance of balancing risk management with support for new ideas. To that end, contractual strength is essential. Tight contracts between developers, contractors, subcontractors, and tenants are vital to mitigate operational risks.
For developers, it can be helpful to remember that lenders often seek opportunities to increase the value of the project during construction, and implement safeguards to protect their investment. Still, the lesson is clear: with a good plan and the right partners, even tough projects can get the funding they need.
By rethinking the financing approach and focusing on sustainability, PiHub turned a challenging situation into a success. The result? A €42 million investment that brought this ambitious community project to life.
At piHub, our deep local connections and market expertise can help put your capital to work in high-potential German real estate and infrastructure opportunities that others miss.
To learn more, schedule a consultation with our investment team today.
