FAQ: What is a profit-participating subordinated loan?

The profit-participating subordinated loan (in German “partiarisches Nachrangdarlehen”) is an agreement under the German Civil Code in which an investor (lender) transfers money to the special purpose vehicle (borrower) for the acquisition of ownership. The special purpose vehicle (SPV) shall repay the amount borrowed without interest (profit participation). During the term of the agreement, the profits (rent) from the partnership must be passed on to the investors as a return (profit-participation). At SUKUUK, profits are generated exclusively from rental income. Investors are not required to make additional contributions. If the SPV becomes insolvent and the real estate must be sold, possible senior creditors are served first due to the subordination. Any surpluses arising from the sale are subsequently divided fairly among all parties according to their shares. This is how the agreement takes on a partnership equity character. 

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