Real estate mogul René Benko faces a more critical spotlight

I was strolling down Kurfürstendamm, Berlin’s main shopping street, with a friend last Saturday. We hitched up our bikes for a drink at an achingly cool place he knew: a double-decker set of chrome shipping containers, at the east end of the otherwise less-fancy avenue.

The bouncers on the doors belied the fact that this was a totally free place, open to all. Inside Kyiv DJs were preparing a set. Upstairs was an art installation.

It was only in the middle of a G&T that the aha moment arrived. There is nothing to declare it, but Pop KUDAMM, “a place of participation”, is a project financed by the Signa Group, the real estate empire of the Austrian real estate magnate. Rene Benko.

Rising above the gleaming shipping containers, I noticed that the building next door, on the plot where Pop KUDAMM crouched, was a ramshackle Galeria Kaufhof Karstadt department store. Signa is its owner. Last month, Galeria, Germany’s largest department store chain, filed for bankruptcy.

To Benko’s critics, who have lately criticized it heavily in the German and Austrian media, Pop KUDAMM is emblematic of the developer’s cynicism.

His argument is simple: Signa, who has a business portfolio otherwise focused on ultra-luxury real estate, was more interested in the land underlying Galeria than in turning it into a viable business, safeguarding the livelihoods of residents. 17,400 people who work there. The plan on this site in Berlin is for a large three-tower development. Pop KUDAMM is a glamorous distraction at best. At worst, a harbinger of Galeria’s demise.

But this reading does not agree with the facts. In reality, Galeria has faced years of industry decline. Its department store business model has long struggled to adapt to a rapidly changing consumer environment.

Signa has done more than the company’s previous owners to support it, pumping close to €1bn into the business. As executive president of Galeria, Miguel Müllenbach I toldThe Frankfurter Allgemeine last week: “Without Signa, [Galeria] It would have stopped operating a long time ago.”

The real problem is not that Galeria’s business model is outdated. It is that perhaps now, the Signa thing is also in question.

Two things fueled Benko’s remarkable rise: leverage and charm. They allowed Signa to develop a business that took mid-sized downtown properties and, with agility, expense and sometimes political support, turned them into impressive sites with much higher valuations.

But leverage is prone to vicious circles, dynamism only goes so far, and in his native Austria, Benko now finds himself at the center of a political backlash.

For years he cultivated close personal relationships with the inner circle of former Chancellor Sebastian Kurz. “Mr. 64 meters” was what Kurz’s political confidante Thomas Schmid once jokingly called Benko, a reference to the superyacht the young billionaire liked to invite political friends of his on board.

But Kurz has resigned. And the scandal that brought it down, a sprawling investigation by Austrian state prosecutors into corruption, has only grown in size. Last month the Signa offices were raided in relation to him. No charges have been filed against Benko. But the reputational consequences of his closeness to the Kurz government are clear enough, and the once-enthusiastic media have pulled their gloves off. Austria’s biggest tabloid, Kronen Zeitung, last month called Benko a “clown” with “more problems than millions.” He is the second largest shareholder of the newspaper.

As for leverage, Benko’s empire was based on it, directly and indirectly. Straight as the financial rocket fuel he sent Signa from a small developer in the Innsbruck Alps to co-owner of the Chrysler Building. Indirectly because Signa flourished in a world of cheap money: central banks vastly inflated asset prices and consumers had all the credit they needed to keep spending.

The macro picture in 2022 is quite different. There are few banks that lend to real estate developers in the conditions that they used to. And as for the consumer, even residents of Benko’s luxury malls, apartments and hotels are seeing their wealth decline.

Signa’s counterargument is one of exceptionalism. Its high-end portfolio is entirely unique, the firm tells investors, and cannot be compared to other real estate assets that are suffering value declines. He has no problem raising money from banks and new investors, he says.

As a private company, highly complex and opaque, it is difficult to subject it to independent judgment. That is a problem. Signa’s business model requires investors to believe its narrative. In the current climate, it’s a harder sell.

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