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Innovative financing instruments are well‐known in Anglo‐American real estate finance markets. This study is the first to analyse the use and structure of the innovative financing instruments in Germany. Based on a survey addressed to German banks offering real estate financing, instrument‐ and bank‐type specific patterns and reimbursement schemes are examined. While the research shows that innovative instruments are not yet widely used in Germany, banks possess experience in mezzanine capital, project and joint venture financing and are optimistic regarding the future development of demand for these instruments.

The interpretation and valuation of real options by means of options pricing theory can be regarded as a relatively new paradigm of investment theory. Option pricing theory based investment valuation represents a sound theoretical basis and offers principally a simple decision base. The approach recognises entrepreneurial flexibility and risk explicitly. It implies a positive correlation between flexibility respectively uncertainty and the value of options. Traditional deterministic‐dynamic standard methods of valuation are not able to value flexibility or risk effectively so that option values are adequately reflected. As property investors gradually embrace modern financial concepts it is clear that real estate valuation theory will have to change. One of the most promising areas that could have an important implication on the further development of valuation is the application of the real options paradigm. The author investigates the transfer of general real options theory through an examination of academic results in the field of real estate development. He comes to the conclusion that current research generates highly academic‐abstract results with limited practical value. So far a limited number of quantitative studies regarding the valuation real estate projects with the real options method have been conducted. Practical valuations have yet to be comprehensively carried out. For doing so, further research concerning the basic prerequisites of real options theory has to be undertaken.