Munich has the thinnest residential vacancy in the German top-seven and the deepest pool of corporate tenants for ground-floor commercial. When a permit-in-hand mixed-use site came to us from a long-standing sponsor, the question was not whether the fundamentals held — it was whether the capital stack could be structured to reward disciplined execution rather than speculation on rental growth. It could, and that is the deal.

The opportunity

A 1,590 sqm scheme comprising 20 residential units over two floors of commercial space, fully permitted, tendered, and with demolition complete at the point of our commitment. The sponsor had secured all zoning approvals and a fixed-price GC contract. What remained was pure construction risk against a known cost base and a clear lease-up trajectory.

Delivered by a repeat developer partner with a twenty-year Munich track record across residential and small-format commercial. The sponsor holds 100% of the mezzanine position and has committed co-investment equity alongside M24 — skin-in-the-game on the same terms as our LPs, not carried interest masquerading as alignment.

Site & submarket

A-location within Munich’s inner ring, one S-Bahn stop from a primary employment node. Residential ask rents in the sub-market have compounded at 4.2% per annum over the last five years; ground-floor retail carries ten-year triple-net leases with two leading national tenants signed pre-construction. The underwrite does not require further rental growth to clear target.

Capital structure

Luxembourg SCSp → German GmbH & Co. KG SPV. M24 Sunshine holds a participation stake alongside the sponsor and a German bank providing senior debt at 55% LTC. Our equity ranks pari passu with the sponsor’s own and carries a preferred return crystallised at deal exit, not per annum.

Underwriting

Target ROI of 28% on equity at the project level, translating to ~23% net IRR for our investors after carry and expenses over a 30-month hold. The downside case (flat rental growth, twelve-month lease-up drag, 5% construction over-run) still clears an 11% net IRR — below target but well above cost of equity.

Risks & mitigants

  • Construction cost — fixed-price GC with 8% contingency held by the SPV, release tied to milestone sign-off.
  • Lease-up on commercial — two of three commercial units pre-let at agreed rents; third unit underwritten at a 15% discount to market.
  • Exit financing — stabilised yield-on-cost is ~5.3%, with refinance or forward-sale optionality to institutional buyers cleared by two indicative term sheets at commitment.

Exit

Programmed stabilisation at month 24, followed by either refinance-and-hold or forward-sale to a German open-ended fund. Either path clears the target inside the 30-month window.