With the entry into force of the “Basel III” reform package on 1 January 2025, conventional financing providers for Senior Loans have become noticeably more conservative. As a result, fewer credit risks are being taken in Switzerland and real estate assets are generally financed at lower loan-to-value levels. This increases equity requirements, which restricts financial flexibility and encourages the emergence of financing gaps. Subordinated mortgages can specifically bridge these gaps and create additional room for manoeuvre, enabling investors to respond flexibly to market opportunities.
Alternative financing providers, such as investment foundations, are not bound by the lower-of-cost-or-market principle when granting loans. This principle obliges Swiss banks to issue mortgages for a period of five years based on the lower of the purchase price or the market value, which significantly restricts credit flexibility in practice. In this environment, subordinated mortgages open up additional opportunities, as financing can be more closely aligned with the market value and thus with the economic value of the property. This allows value increases to be better reflected, expanding financing capacity and strengthening entrepreneurial flexibility.
Subordinated Loan Financing
Tailor-Made Financing Solutions for Your Real Estate Projects
Thanks to Valvest's many years of comprehensive expertise in real estate financing, we can offer you individual and tailor-made financing solutions for complex and ambitious projects. We regard our clients as partners and support them in optimising their capital structure and gaining targeted strategic competitive advantages.
As financing specialists, we offer access to subordinated financing of up to 80% loan-to-value through the AKRIBA Real Estate Investment Foundation, with our services aimed at both natural persons and legal entities based in Switzerland.
Examples of Subordinated Financing
Release of Liquidity
Subordinated financing can be used to release capital tied up in existing properties. This liquidity can then be used profitably for other real estate projects, investments or renovations, for example.
Leverage Effect on Equity
The targeted use of a junior loan can reduce the amount of equity capital required. Existing equity capital can be distributed across various projects, which has a positive effect on the return on equity.
Interim Financing
Subordinated mortgages are often used to bridge short- to medium-term capital requirements, such as before a planned transaction or long-term financing. In situations where a quick response is crucial, this creates flexible liquidity.
Tax Optimisation
Interest costs on subordinated mortgages for investment properties are generally tax-deductible in Switzerland. Including a junior loan in the financing structure not only reduces equity requirements but also enables more efficient tax planning.
What is a subordinated Mortgage?
Subordinated mortgages (also referred to in this context as “Junior Loans” or “mezzanine financing”) are understood to be real estate financings in which the lender does not hold first-ranking security in the land register, but rather ranks behind a senior capital provider (referred to in practice as a “Senior Loan”). This form of subordinated debt is typically used when additional liquidity is to be raised on top of the Senior Loan. Through this leverage effect, equity gaps can be bridged and the overall capital base increased, which can be decisive in the execution of real estate projects.
Advantages for Real Estate Developers
Mit dem Inkrafttreten des Reformpakets «Basel III» per 1. Januar 2025 sind konventionelle Finanzierungsanbieter für Senior Loans merklich konservativer geworden. Als Folge werden in der Schweiz weniger Kreditrisiken eingegangen und Immobilien im Allgemeinen tiefer belehnt. Dadurch steigt der Eigenkapitalbedarf, was die Handlungsfähigkeit einschränkt und Finanzierungslücken begünstigt. Nachrangige Hypotheken können diese Lücken gezielt schliessen und zusätzlichen Handlungsspielraum schaffen, um flexibel auf Marktopportunitäten reagieren zu können.
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From an economic perspective, capital-efficient real estate development and investment in properties are essential and highly attractive. The less equity is invested in a project, the higher the return on equity. Through the leverage effect, the additional capital provided by a subordinated financing solution allows larger projects to be realised or enables broader diversification across different real estate investments.
Capital Structure (Example)
Alternative Finanzierungsanbieter wie beispielsweise Anlagestiftungen sind bei der Kreditvergabe nicht an das Niederstwertprinzip gebunden. Dieses verpflichtet Schweizer Banken während fünf Jahren, Hypotheken stets auf Basis des tieferen Werts von Kaufpreis oder Verkehrswert zu vergeben, was die Kreditflexibilität in der Praxis spürbar einschränkt. Nachrangige Hypotheken eröffnen in diesem Umfeld zusätzliche Möglichkeiten, da sich die Finanzierung stärker am Verkehrswert und damit an der marktwirtschaftlichen Werthaltigkeit der Liegenschaft orientieren kann. Dadurch können Wertsteigerungen besser berücksichtigt werden, was den Finanzierungsspielraum erweitert und die unternehmerische Handlungsfähigkeit stärkt.
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If loan-to-value levels remain aligned with the lower value over several years, market value developments are only partially reflected in the financing structure. A stronger focus on market value can make capital allocation more dynamic and increase flexibility in investment decisions.
What are the advantages of subordinated loans?
Increase in return on equity
Bridging financing gaps
Growth and expansion thanks to liquidit
No commitment to the lowest-value method
Who can benefit from subordinated loans?
Real estate investors
Project developers
Architects
Swiss SMEs
Our signature in the market
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Region Montreux
Loan-to-Value (LTV) · 70%
Term · 2 Years
Subordinated Volume · CHF 1’600’000.- -
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Region Basel
Loan-to-Value (LTV) · 64%
Term· 2 Years
Subordinated Volume · CHF 1’600’000.- -
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Region Zurich
Loan-to-Value (LTV) · 66%
Term · 3 Years
Subordinated Volume · CHF 3’000’000.-
FAQ
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A subordinate mortgage is a loan secured by real estate that is subordinate to financing provided by a conventional financing provider (e.g. a bank) and, in the event of foreclosure, is only serviced after the senior mortgage. Subordinate mortgages – also known as junior loans – provide additional liquidity where traditional financial institutions reach their lending limits, thereby supplementing conventional financing.
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Our financing solutions are primarily aimed at owners and investors of investment properties in Switzerland who want to free up liquidity, increase their return on equity, create scope for new investments and benefit from tax optimisation opportunities.
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Lending focuses mainly on rented properties, such as apartment buildings, commercial properties or mixed-use properties, as these generate rental income which, ideally, already generates a positive cash flow when viewed in isolation at the property level.
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Junior loans offer more flexibility in terms of how the funds are used and are not bound by the lowest-value method, which means that the market value of the property can be used as the basis for the loan, often allowing for a higher loan-to-value ratio.
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Residential properties with a maximum commercial component of 25% can be mortgaged up to 80%. Office and commercial properties can be mortgaged at 70% if they are let on a long-term basis to tenants with good credit ratings; otherwise, the maximum LTV is 50%.
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We grant our junior loans as SARON mortgages with terms that normally range between two and three years. In exceptional cases, shorter terms may also be considered.
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It usually takes between five and nine weeks from the date of the financing request to the disbursement of the junior loan. Factors such as the complexity of the project or the coordination between all parties involved must also be considered.
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The affordability of the loan must be demonstrated by rental income and/or sustainable cash flow. The sustainable income must fully cover the annual interest expenses, amortisation, maintenance and operating costs.
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The loan analysis requires the usual documents that are in line with the industry standard and information for the property and the borrower, with a distinction being made between legal entities and private individuals. We are happy to send you a detailed checklist of the required documents on request.
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As part of the initial credit assessment, a desktop valuation (capitalized earnings method) is prepared to determine an indicative market value as a first point of reference. In the subsequent detailed analysis, an on-site property valuation is carried out by a professional Swiss valuation company as part of the due diligence process.
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As a rule, there is no amortisation obligation during the term, and the junior loan is repaid in full at maturity. With the SARON mortgage, however, it is possible to voluntarily repay the loan amount in full or in part after a minimum duration before the end of the regular term.
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The interest rates for subordinated loans are higher than those for traditional senior mortgages, as the risk of subordination is higher. The credit rating and the nature of the property are decisive for the individual interest rate, which varies on a project basis.
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While Valvest is responsible for structuring and servicing the subordinated mortgage loans, AKRIBA Immobilien-Anlagestiftung is the lender. The loan agreement is concluded between the borrower and AKRIBA Immobilien-Anlagestiftung.
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The junior loan is secured by a subordinated mortgage on the property, whereby collateral can be provided on several properties. Additional collateral such as joint and several guarantees, guarantees, etc. can also be considered on a project-specific basis if desired, but it is not mandatory.
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Interest costs for investment properties are considered debt interest for both senior and junior loans and are tax-deductible in Switzerland.
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The funds released from the subordinated mortgage are generally not earmarked for a specific purpose, which means that the capital can be used flexibly, for example for investments, renovations or optimising the capital structure.