Real estate mogul René Benko faces a more critical spotlight
The filing of Germany’s biggest department store chain for bankruptcy protections intensifies scrutiny of the Austrian developer
I was cruising down the Kurfürstendamm, Berlin’s main shopping drag, with a friend last Saturday. We hitched up our cycles to grab a drink in an achingly cool place he knew: a two-storey ensemble of chrome-coloured shipping containers, at the avenue’s otherwise less fashionable eastern end.
Bouncers on the doors belied the fact this was a totally free venue, open to all. Inside DJs from Kyiv were readying a set. Upstairs was an art installation.
It was only midway through a G&T that the aha moment came. There is nothing anywhere to declare it, but Pop KUDAMM — “a place of participation” — is a project funded by the Signa Group, the property empire of Austrian real estate mogul René Benko.
Rising above the gleaming containers, the building next door, I noticed, on the plot of which Pop KUDAMM was hunkered, was a shabby Galeria Kaufhof Karstadt department store. Signa is its owner. Last month Galeria, Germany’s biggest department store chain, filed for bankruptcy protection.
For Benko’s critics — who have vigorously panned him in the German and Austrian media of late — Pop KUDAMM is emblematic of the cynicism of the developer.
Their argument is a simple one: Signa, which has a business portfolio that is otherwise focused on ultra-luxury real estate, was more interested in the underlying plots of land of Galeria than turning it into a viable business, safeguarding the livelihoods of the 17,400 people that work there. The plan on this site in Berlin is for a huge development of three towers. Pop KUDAMM is at best a glamorous distraction. At worst, a harbinger of Galeria’s demise.
But this reading does not accord with the facts. In reality, Galeria has been facing years of the industry’s 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 Galeria’s chief executive Miguel Müllenbach told the Frankfurter Allgemeine last week: “Without Signa, [Galeria] would have long since ceased operating.”
The real issue is not that Galeria’s business model is out of date. It is that perhaps now, Signa’s is under question too.
Two things fired Benko’s remarkable ascent: leverage and charm. They allowed Signa to develop a business that took middling city-centre properties and — with pizzazz, spending and sometimes political support — develop them into impressive sites with vastly increased valuations.
But leverage is prone to vicious cycles, pizzazz only goes so far and in his native Austria, Benko now finds himself at the heart of a political backlash.
For years he cultivated close personal relationships with the inner circle of former chancellor Sebastian Kurz. “Mr 64 metres” was what Kurz’s political confidant, Thomas Schmid, jokingly once called Benko — a reference to the superyacht the young billionaire liked to invite his political friends aboard.
But Kurz has resigned. And the scandal that toppled him — a sprawling investigation by Austrian state prosecutors into corruption — has only grown in size. Last month Signa’s offices were raided in connection with it. No charges have been filed against Benko. But the reputational fallout from his closeness with the Kurz government is clear enough, and the gloves are off in media outlets that once gushed over him. Austria’s biggest tabloid, Kronen Zeitung, last month dubbed Benko a “clown” with “more problems than he has millions”. He is the newspaper’s second-largest shareholder.
As for leverage, Benko’s empire was built on it — directly and indirectly. Directly as the financial rocket fuel that sent Signa from small-time developer in alpine Innsbruck to part owner of the Chrysler Building. Indirectly because Signa boomed in a world of cheap money: central banks vastly inflated asset prices and consumers had all the credit they needed to go on spending.
The macro picture in 2022 is quite different. There are few banks that will lend to property developers on the terms they once did. And as for the consumer, even the denizens of Benko’s upmarket malls, apartments and hotels are watching their wealth dwindle.
Signa’s counter argument is one of exceptionalism. Its high-end portfolio is totally unique, the company tells investors, and cannot be compared with other real estate assets which are suffering falling values. It has no problem raising money from banks and new investors, it says.
As a private company — one of great complexity and opacity — it’s hard to subject it to independent judgment. That is an issue. Signa’s business model needs investors to believe in its narrative. In the current climate, it is a tougher sell.