Signa, the retail and real estate conglomerate, became bankrupt on Wednesday following the failure of desperate attempts to obtain new capital, becoming the largest victim of Europe’s real estate crisis to date.
The group, directed by the Austrian tycoon René Benko, owns the Chrysler Building in New York City in addition to a number of well-known projects and department stores in Germany, Austria, and Switzerland.
The multibillion-euro group is expected to cause a stir in the continent’s beleaguered real estate market. Its reach extends from Berlin’s KaDeWe, Germany’s most famous department store, to the nation’s leading high-street chain, Galeria, and a tower project.
Karl Nehammer, the chancellor of Austria, attempted to downplay the impact of the company’s failure. “What’s really important is that all those who invested here, especially the banks, stay stable,” he stated to reporters. “That’s critical.”
Research earlier this week from analysts at one of Signa’s largest lenders, Austria’s Raiffeisen Bank International, indicated that the company’s problems would cause a worse decline in commercial real estate values if it began to sell properties.
The Austrian parent company of Signa announced that it would file an application for bankruptcy and initiate group restructuring with a Vienna court.
“The aim is the orderly continuation of business operations and the sustainable restructuring of the company,” stated the statement.
Benko was the main owner and operator of Signa, although several other affluent people, such as the Austrian entrepreneur Hans Peter Haselsteiner, had minor shares.
It is anticipated that the holding company’s insolvency will spread throughout the group, even though one significant subsidiary is still struggling to survive.
According to a person with knowledge of the situation, last-ditch investor efforts to raise capital for subsidiary Signa Prime, in which Signa Holding owns a controlling stake, are still underway but have little chance of succeeding.
Signa Prime Selection, with a gross asset value of 20.4 billion euros, is the largest entity within Signa’s real estate division.
The RAG foundation in Germany, the Peugeot family in France, and German billionaire Klaus-Michael Kuehne are among the other minority investors in the Prime business.
The unit specializes in real estate investments in desirable inner-city settings in northern Italy, Germany, Austria, and Switzerland.
Property values in Germany, where a large portion of the group’s business is based, have plummeted due to the greatest increase in borrowing costs in the 25-year history of the euro.
As investors begin to recognize the lags in monetary policy, it will be somewhat of an unpleasant awakening, according to Aneeka Gupta, an equities strategist at investment management WisdomTree.
Signa attributed its issues to outside forces impacting its real estate business and pressure on high-street retail.
Property consultant Sven Carstensen of Bulwiengesa stated that Signa’s substantial property assets in Germany, primarily in central locations, meant that its bankruptcy might cause significant damage to the country’s cities.
The group consists of multiple businesses and values its assets at 27 billion euros ($29 billion). JP Morgan calculated that its debt was worth 13 billion euros.
Its bankruptcy left a trail of abandoned construction projects throughout Germany, including one of the largest skyscrapers in the nation.
ABANDONED WORK
Before it stopped paying the contractor, who stopped working on the planned 64-story Elbtower building in Hamburg, Signa had been making good progress on the project. In addition, work has halted at five other German Signa locations.
Over the years, a number of banks, insurance providers, and pension funds have funded and made investments in Signa companies and bond sale prospectuses.
Banks that Signa has taken out large loans from include Julius Baer in Switzerland, which revealed that it owes over 600 million Swiss francs ($678 million).
Signa’s headquarters and place of founding are in Austria, where there are particularly significant financial ties.
Among the banks with exposure to Signa are Raiffeisen Landesbank Oberoesterreich, Raiffeisen Landesbank Niederoesterreich-Wien, and Erste Group.
Austria’s Raiffeisen Bank International is one of the other lenders.
A person with knowledge of the case claims that earlier this month, one of its executives, Hannes Moesenbacher, detected a 755 million euro exposure to a client, alluding to Benko’s firm.
Several hundred million euros have been lent to the firm by BayernLB and Helaba, the regional state-backed banks for two of the wealthiest states in Germany, Bavaria and Hesse, according to persons with knowledge of the situation.
Germany, the largest economy in Europe, is currently experiencing a real estate crisis as a result of several developers going bankrupt and postponing agreements and construction due to a dramatic increase in loan rates and building expenses.
For many years, the German real estate industry was the backbone of the country’s economy, producing one in ten jobs and around a fifth of all output. Billionaires invested in real estate, which was seen as stable and secure up to the most recent increase in borrowing costs, thanks to low interest rates.
The global attention towards commercial real estate has been drawn by the status of the industry’s weakness in the United States, where offices remain unoccupied even after the pandemic, and the challenges faced by big property developers in China.
