Stuttgart is a deceptively liquid market for residential equity. The regional employment base is deep and non-cyclical, owner-occupier demand absorbs mid-ticket unit sizes faster than the top-seven average, and bank-led financing has stayed open through the rate cycle. This 58-unit scheme is deployed into that profile with minimal capital-structure complexity.

The opportunity

A 2,100 sqm residential scheme comprising 58 compact two- and three-room units in a well-connected Stuttgart sub-market. Demolition and piling complete at commitment; project on the critical path for a 24-month construction schedule with a further six months allocated to sell-through.

Established Stuttgart-Baden developer with a residential-only focus and fourteen completed projects in the region. Fixed-price GC contract in place with a regional main contractor carrying twenty years of schedule performance on residential work of this scale.

Site & submarket

Secondary but rapidly improving sub-market served by two S-Bahn lines and a completed public-realm upgrade. Owner-occupier demand for the unit mix (45–72 sqm) absorbs at 6–8 sales per month across comparable schemes. Sale prices at underwrite: €5,200/sqm, ~12% below the sub-market’s current peak.

Capital structure

SCSp → German SPV, senior construction facility at 60% LTC from a regional bank, sponsor equity 20%, M24 Sunshine equity 20% pari passu. Waterfall: senior debt → pref to equity → promote on the outperformance — clean, with no preferred-equity layer or mezzanine noise.

Underwriting

Target ROI of 38% on project equity on a 30-month deploy-and-sell cycle — an aggressive number on paper, but grounded in conservative sales velocity (4 units/month versus the 6–8 observed in comparables). The investor net IRR target of 24% is cushioned accordingly.

Risks & mitigants

  • Sell-through pace — the base case underwrites 4 units/month; break-even pace is 2.3 units/month, well inside historical worst-case bands.
  • Sale price softening — underwritten at a 12% discount to current sub-market peak; further 8% softening is absorbed before target-IRR breach.
  • Cost over-run — fixed-price GC, 6% contingency retained at SPV, release on milestone sign-off.

Exit

Unit-by-unit sale to owner-occupiers over months 24–30, with a bulk-sale fallback to a regional Wohnungsunternehmen negotiated at 88% of aggregate retail. Target clears on either path.