Benko likes to joke that only the Catholic Church and the British monarch can boast a real estate portfolio that matches Signa. Photo: GEORG HOCHMUT/AFP
Just over two miles southeast of the center of Hamburg, where the mighty Elbe River and the Oberhafen Canal meet, stands the unfinished concrete shell of what could have been one of Germany's tallest skyscrapers.< /p>
At 800 feet high, the Elbtower, 64 storeys high and with an estimated construction cost of almost €1 billion (£870 million), was approved in 2018 with great fanfare.
Professor Jürgen Bruns-Berentelg, the man responsible for renovation of the building, the surrounding HafenCity neighborhood said that when completed it will represent the city's «future potential, its economic strength and its courage to shape the future.»
He was far from the only fan. The German chancellor became such a strong supporter of the project when he was mayor of Hamburg that it was nicknamed «Olaf Scholz's tower» in some circles. Meanwhile, a review on the Elbtower website says that high-rise buildings “often become a symbol of economic recovery and optimism.”
Not this one. With construction work suddenly halted, the Elbtower is destined to become a symbol of the worst excesses of the cheap property boom of the last decade. The Hamburg government has threatened to take control of the site if work does not resume soon. A planned branch of high-end sushi chain Nobu is firmly on ice.
The Elbtower symbolizes too much of what is rotten in Europe's biggest economy, such as the business empire of René Benko, the Austrian billionaire behind it. the scheme threatens to fall apart.
With Benko's holding company Signa unable to pay the wages of construction workers and a real estate crisis unfolding across the Western world, a scramble has begun among his key supporters to prevent Benko's kingdom from collapsing like a house of cards. The failure of an attempt to make money on the unfinished Elbtower became one of the triggers of the crisis.
German Chancellor Olaf Scholz actively supported the Elbtower project while mayor of Hamburg . Photo: Buch Florian/Action Press/Shutterstock
One of Signa's largest investors, Austrian construction magnate Hans Peter Haselsteiner, believes the company can be saved in an emergency. capital injection. “It is not too heavily indebted, rather it is in a difficult liquidity situation,” Haselsteiner told the Tiroler Tageszeitung newspaper. But all shareholders must participate in this, “otherwise nothing will work,” he said.
Others are less sure. “The big question that everyone is asking and [Signa] needs to answer is what is the exact liquidity need and how quickly is it needed? There are rumors that you need a lot and very quickly. If you are an investor or a creditor, how can you come to terms with this given the lack of clarity?” says a restructuring consultant for one group of creditors.
Benko's efforts to maintain restraint are low. contrasts with the vast collection of prestigious buildings he has collected around the world.
In London, he owns a 50% stake in the Selfridges department store. In Berlin, he acquired the famous retailer KaDeWe. In Vienna, Signa is the proud owner of the stunning luxury Park Hyatt Hotel, and in New York, he owns half of one of the most recognizable skyscrapers in the world: the Art Deco Chrysler Building in Manhattan.
Chrysler had status thing. This was his international calling card: owning such a historic property in New York,” says Markus Howe of the Vienna-based investigative consultancy.
Benko's problems threaten to be particularly troublesome. for the German establishment. Although his business interests span the globe, the first indication that Germany may bear the brunt of any fallout is the extent of Signa's presence there.
This would cause further confusion and shame for a business elite still reeling from the collapse of Wirecard's technology model, repeated controversies at Deutsche Bank and the elaborate «dieselgate» emissions fraud at Volkswagen. There was a time when German corporate titans were widely admired, but lately Deutschland Inc. has become synonymous with costly scandals, excesses and poor management.
Across Europe and America, the multi-trillion pound commercial property industry is being shaken up by soaring interest rates, plummeting valuations and a scramble for cash among those who have borrowed the most.
< p>Benko says is as vulnerable as anyone, thanks to the sheer size of his empire, his enthusiasm for tapping the credit markets, and his collection of assets whose values are under pressure.
He reportedly likes to joke that only the Catholic Church and the British monarch can boast a real estate portfolio equal to Signe's. Perhaps he's only half-joking. Few people have built a real estate company of this magnitude.
According to Forbes, the number one real estate tycoon in America is Donald Bren, whose real estate is valued at $18 billion. The people who manage the vast fortune of Europe's richest man, fashion mogul Amancio Ortega, say he has accumulated assets worth $20 billion.
Although the complexity of Signa's properties, as well as falling asset values, makes it nearly impossible to get an exact figure, the Austrian company last year said its paper value was closer to 30 billion euros. The company reportedly has a further €25 billion in planned construction projects. Many are underway, although a growing number are now idle due to cash shortages that threaten to overwhelm Signa.
Benko's long shopping spree is a far cry from his uneventful early life.
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He was born in Innsbruck in 1977 and grew up in a small apartment. His father worked for the local council and his mother worked in a kindergarten. He first learned about the real estate trade in school, where he combined classes with a part-time job turning attics into living spaces. He skipped so many classes that he was not allowed to stay and complete the Austrian equivalent of A-levels.
He soon began looking for financial help. With the support of a millionaire friend who owned a penthouse he converted, he eventually struck out on his own. By 2003, Benko was looking for new investors, promising on the Signa website: “Now you can make money without doing anything.”
His big break came in 2004, when the heir to an Austrian gas station chain financed Benko's company. purchasing the venerable Kaufhaus Tyrol department store in his hometown. He was only 27 years old. Over the next decade, Benko collected many so-called “premium” properties, mainly in German-speaking countries.
Takeover of a Berlin department store KaDeWe brought Benko to the super league in 2012. Photo: AndreaAstes/iStock Editorial
But it was the takeover of Berlin department store KaDeWe in 2012 that catapulted it into the super league. Considered one of the city's most celebrated buildings, infighting between its then-owners meant that «nobody wanted to touch it,» says Leonard Dobusch, a management professor at the University of Innsbruck who has followed Benko's career closely. Benko snapped up the property a few weeks after it was put up for sale.
“You have a young, smart and charismatic guy who can tell a story that promises huge profits. He managed to buy a large building in Berlin that was considered unsuitable for purchase. But he did it, and suddenly he was the one delivering the results. You have that initial miracle, and then all it takes is for rates to stay low and prices to rise,” says Dobush.
However, cracks in Benko’s façade have already begun to appear.
The following year he was convicted of bribery. An Austrian court found him guilty of attempting to bribe Italian government officials to forgive a tax bill for which Signy was responsible in Milan. The conviction and suspended one-year prison sentence forced Benko to formally relinquish day-to-day management of his company. At the same time, Benko was investigated on suspicion of money laundering, but the case was later dropped by the Vienna prosecutor's office.
Nevertheless, he managed to charm a powerful mixture of prominent business figures, highly influential politicians, and major banks, insurers and bond investors who helped finance his remarkable deals.
«Everyone was just strangely blind to it,» Howe says.
The list of Signa's main investors reads like a who's who of the German and Austrian elite. Construction king Haselsteiner owns 15% of the business. Transport magnate and Germany's richest man Klaus-Michael Kühne owns 10% of the shares. Others include the French billionaire Peugeot family, the foundation of late Formula One driver Niki Lauda and Tetra Pak's Rausing dynasty. Among the early supporters was diamond merchant Benny Steinmetz, who has since been convicted of corruption in an unrelated case.
High earnings and generous dividends may have attracted their attention. «He promised his investors a return of 6% to 8% on their investment,» Howe says.
Meanwhile, Signa Prime, which houses the company's luxury properties, paid out more than €630 million in dividends in period from 2014 to 2021. Benko bought the 203-foot superyacht Roma for $45 million, accommodating a dozen guests and 14 crew.
As Chancellor of Austria, Sebastian Kurz was also among the many guests who dined and were treated to Benko's Tyrolean-style fall parties. Photo: CHRISTIAN BRUNA /EPA-EFE/Shutterstock
During his time as Austrian Chancellor, Sebastian Kurz was also among the many guests who dined and were treated to Benko's Tyrolean-style autumn parties held at the Park Hyatt Grand Hotel in Vienna. However, the luxury meeting has not been held since 2019 — around the same time European financial observers began asking serious questions about the sustainability of Signa's business model.
That same year, the Austrian Financial Market Authority raised concerns about the impact of the country's second-largest bank, Raiffeisen, on the Signa group. The FMA estimated the lender breached «internal limits» as many as nine times, according to an FMA report seen by Bloomberg. Raiffeisen disputed the calculations and no action was taken.
German regulator BaFin and the European Central Bank also surveyed the continent's banks and major insurers about the extent of their lending to the company. In a 76-page internal presentation seen by Reuters, about 40 lenders and insurers were named as “investors and financial partners.” Although the document is undated, it contains data for 2019.
The scrutiny appears to have caused some of those who financed Signa's growth to retreat. In February, it was revealed that Deutsche Bank, an institution that has shown more willingness than others to take on high-profile personalities such as one Donald J. Trump as clients, had severed virtually all ties with Benko.
“To build so much property in such a short period of time is only possible if you engage in risky lending and leverage practices. And that's what they did. Now they have a liquidity crisis,” says Dobusch.
Questions have been repeatedly asked about the opaque structure of Signa: a network of more than 100 companies owned by trusts and shell companies based in Switzerland and Liechtenstein, making it difficult to obtain a clear idea of its true financial condition.
Concerns have also been raised about the scheme, which relies on Benko's bid to become a major tenant of his own properties, which critics say has allowed valuations to continue rising while other major property investors have been forced into steep write-downs.
“The whole business model was based on being able to raise rents so they could get even higher valuations. This would allow them to roll over their loans.»
Meanwhile, Benko continues to argue with the law.
He was acquitted earlier this year in another bribery case, and Benko is now a suspect in a second separate corruption investigation by Austrian prosecutors, which led to a raid on Signa's Innsbruck headquarters in October. Neither Signe nor Benko have been charged and both deny any wrongdoing in connection with the investigation. Former Chancellor Kurz was implicated in the same investigation and said that «the accusations are false.»
The man tasked with trying to sort it all out after Benko agreed to hand over control is German bankruptcy expert Arndt. Geivitz. He must quickly determine what the short-term liquidity shortage is and whether it can be overcome.
According to Signa's annual report, €200 million of bonds issued by Signa Prime mature at the end of November and the profit-sharing scheme is due to be paid at the end of the year. The smaller unit, Signa Development, has a €250 million construction loan due next year, according to Fitch.
Germany's richest man, Klaus-Michael Kühne, has rejected calls to finance the remaining construction of the Elbtower. Photo: Feddersen/ullstein bild via Getty Images
But Signa's ability to repay its loans is in question. In 2022, Signa Prime posted profits of €700 million in the previous year and losses of over €1 billion. Borrowings amounted to 10.8 billion euros. Earlier this month, Signa's NYSE-listed sporting goods retail unit filed for bankruptcy.
Benko is at the mercy of creditors and existing investors. But as one turnaround specialist notes: “If you're an investor, investing new money is a roll of the dice. You would want the lenders to provide new terms, otherwise you could be back at the negotiating table in a few months. Will people be comfortable? This is a big question.”
There are already signs that shareholders are reticent to participate in any monetary procedures. Consulting king Roland Berger, who also sits on Signa's board of directors, told German newspaper Handelsblatt last month that he had exercised a put option to sell back his 1.6% stake in Signa Prime, while Klaus-Michael Kuehne rejected calls to intervene and fund the project. remaining construction of the Elbtower.
“Signa needs peace and order now. We will approach these important tasks carefully and rationally,” Geivitz said after his appointment last week.
Benko could only lament: “Given the current situation, this is the best decision for both the company and its partners.» , investors and employees.»
The stakes are high, especially for Germany, which Benko has turned into Signa's most important market with projects located in cities such as Berlin, Hamburg, Düsseldorf, Stuttgart, Munich and Frankfurt.< /p>
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However, according to a survey carried out by the IFO institute in Munich in September, many of them broke tools, while one in five property companies in the country said they had canceled construction projects.
< p> “The most beautiful thing is that everyone or the majority wants something from me,” Benko told Austrian public television in 2019. That may be true, but not in the way he thought.
Additional reporting by Luke Barr.
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