Investor Guide
2026-10-10 09:20

Loan-to-Value (LTV, the loan's share of value): 60% — of Which Value?

Loan-to-value (LTV) is the ratio of a loan to the value of the property pledged: a €5 million loan on a €10 million store means an LTV of 50%. In Germany the question is which value: the same percentage measured against the lending value (Beleihungswert) means a markedly smaller loan than one measured against the purchase price.

What it is

International practice measures LTV against market value or purchase price. In our experience, German banks also express the loan as a percentage of the lending value (Beleihungsauslauf), which for a supermarket is well below the price. For covered bonds (Pfandbriefe) the law sets the limit: only the part of a loan within the first 60% of the lending value goes into their cover (§ 14 PfandBG). A loan agreement can also cap the ratio for its whole term through a maximum LTV on revaluation (a covenant); a breach can require fresh equity or a partial repayment.
Exhibit 1. One €5 million loan, three LTVs: 49%, 54% — or at least 82% of the lending value (our example)
Basis
Value
Loan ratio
Purchase price: 18.5 times an annual rent of €500,000
€9.25 million
54%
Price plus 9.45% acquisition costs
€10.12 million
49%
Lending value, upper limit under the BelWertV
€6.1 million
at least 82%

Why it matters to investors

Debt raises the return on equity only if it costs less than the property earns. According to preliminary Deutsche Bundesbank data, in August 2026 German banks charged non-financial companies an average of 4.02% a year on new loans above €1 million fixed for 5–10 years. Floating-rate loans cost 3.28%; both figures exclude fees. The net initial yield on prime supermarkets is 5.00% (BNP Paribas Real Estate, Q3 2026), and 3.9% in our cautious example in Part 11 of the series German Prime Retail. At 3.9% and a rate of about 4%, every borrowed euro lowers the return on equity rather than raising it.
That is why many private investors buy single stores with little or no debt (Part 4). If a loan is needed, the bank secures it with a land charge (Grundschuld) and, from small companies, often requires a shareholder guarantee or the subordination of shareholder loans (Gesellschafterdarlehen; Part 9). The shareholder loan itself should stay unsecured: if German property secures it, even through a second-ranking land charge, its interest becomes German-source income (Part 9).

What to check

• Which value the bank measures the loan against — price, market value or lending value — and whose valuation it uses.
• Covenants for the whole term: maximum LTV, revaluation procedure, interest cover from rental income and the consequences of a breach.
• The return on equity with and without the loan at today's rate.
• The repayment schedule against the fixed remaining lease term.
• Security: the rank of the land charge, guarantees, and subordination of the shareholder loan, which must itself remain unsecured.
Related terms: Beleihungswert · Zinsbindung · Grundschuld · Gesellschafterdarlehen
Sources: PfandBG § 14; BelWertV; Deutsche Bundesbank, bank interest rate statistics, new loans to non-financial corporations above €1 million (series BBIM1, SUD149 and SUD153), August 2026; BNP Paribas Real Estate, German retail investment market report for Q3 2026; Gordon Real Estate Group, "German Prime Retail", Parts 4, 9 and 11. Data as of 10 October 2026.
Photo: Peter Herrmann / Unsplash
This entry is general information and not legal or tax advice.