Traditional banks in Spain will finance, at most, 60–65% of a real estate development's cost. For a developer that needs to reach 90% of the project's value, the difference — that remaining 25–30% — has to come from somewhere else. That's exactly what alternative financing for real estate developers does.
Why isn't traditional banking enough anymore?
Since the 2008 crisis, Spanish banks operate under much stricter ECB criteria. They require 40–60% pre-sales before formalizing a development loan, personal guarantees from the partners, and a conservative loan-to-cost (LTC) ratio. For many mid-sized developers — with projects between €2M and €20M — these requirements are hard to meet without tying up too much of their own capital.
The result is that projects that are technically and commercially viable never get built, because their financing stack is incomplete.
What is alternative financing?
Alternative financing is the set of non-bank capital sources that complement or replace banks in a development's financing structure. It mainly includes three types of players:
- Real estate debt funds: specialized vehicles such as Incus Capital, Stoneweg or Arcano that lend capital at higher rates than banks (typically 8–15% annually) in exchange for more flexibility. They don't require pre-sales up front and accept projects at earlier stages.
- Family offices and private investors: private wealth seeking returns in real estate. They can participate as mezzanine debt (subordinated to the bank) or as partial equity in the project.
- Real estate crowdfunding platforms: Urbanitae, Civislend or Housers structure collective financing for projects from €500,000, with 12–36 month terms and no pre-sales requirement.
Key figure: By combining Spanish bank debt (~60%) with alternative financing (~30%), a developer can reach up to 90% of the project's value while contributing only 10% of their own resources. That significantly boosts return on equity (ROE).
How is the deal structured?
A typical 90% LTV financing structure for developers has three tranches:
- Tranche 1 — Senior debt (bank): covers 55–65% of cost. It's the cheapest money (Euribor + 2–3%), but the most demanding on guarantees and pre-sales.
- Tranche 2 — Mezzanine or complementary debt: covers an additional 20–30%. It comes from alternative funds or international banks. Higher price (8–12% annually), but no pre-sales required.
- Tranche 3 — Developer's own equity: the remaining 10%, which acts as the first loss cushion for lenders.
This structure isn't standard — it varies by market (Balearics, Madrid, Costa del Sol), project type (open-market residential, hotel, subsidized housing) and the developer's profile. Structuring it correctly is key to making sure all tranches are compatible with each other.
What are the advantages of alternative financing for a developer?
- It allows construction to start with fewer pre-sales, reducing the time to break ground.
- It frees up equity to develop more projects in parallel.
- It adds speed: alternative funds can respond in days versus the weeks banks typically take.
- It accepts assets and projects that traditional banks would reject (unlicensed land, projects in smaller municipalities, developers without an extensive track record).
When doesn't alternative financing make sense?
It isn't always the optimal solution. If a developer can cover 35–40% with its own resources and has sufficient pre-sales, traditional bank financing alone is cheaper. Alternative financing makes sense when:
- Available equity is limited (10–15% of cost).
- The developer wants to break ground before reaching the bank's pre-sales threshold.
- The project is in a market or asset type that local banks don't finance well.
Have a project that needs financing?
At iberfund we structure the full financing package — banks + alternative capital — in a single process. No cost until closing.
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