I was walking down Kurfürstendamm, Berlin’s main shopping street, with a friend last Saturday. We hitched up our bikes for a drink in an awfully cool place he knew: a two-story set of chrome-colored shipping containers on the otherwise less fashionable east end of the avenue.
Bouncers on the doors belied that it was a completely free venue open to everyone. Inside, DJs from Kyiv were preparing a set. Upstairs was an art installation.
It wasn’t until the middle of a G&T that the aha moment came. There’s nothing to declare it anywhere, but Pop KUDAMM – “a place to participate” – is a project funded by the Signa Group, the real estate empire of Austrian property magnate René Benko.
Rising above the gleaming shipping containers, the building next door, I noticed, on whose lot Pop KUDAMM was crouching, was a shabby department store Galeria Kaufhof Karstadt. Signa is its owner. Last month, Galeria, Germany’s largest department store chain, filed for bankruptcy protection.
For Benko’s critics – who have been lambasting it vigorously in the German and Austrian media lately – Pop KUDAMM is emblematic of the developer’s cynicism.
Their argument is simple: Signa, which has a business portfolio otherwise focused on ultra-luxury real estate, was more interested in the land underlying Galeria than in making it a viable business, safeguarding the livelihoods of local residents. 17,400 inhabitants. the people who work there. The plan on this site in Berlin is for a huge 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 faces 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 former owners to back it up, pumping nearly a billion euros into the business. As Galeria managing director Miguel Müllenbach told the Frankfurter Allgemeine last week: “Without Signa, [Galeria] would have stopped working a long time ago.
The real problem isn’t that Galeria’s business model is outdated. It may be that now Signa’s is also being questioned.
Two things sparked Benko’s remarkable rise: leverage and charm. They allowed Signa to grow a business that took mid-sized city center properties and – with pizzazz, expense and sometimes political backing – developed them into impressive sites with vastly increased valuations.
But the leverage is prone to vicious circles, the sizzle doesn’t go that far and in his native Austria, Benko now finds himself at the heart of a political backlash.
For years he had a close personal relationship with former Chancellor Sebastian Kurz’s inner circle. “Mr 64 meters” was what Kurz’s political confidant Thomas Schmid jokingly called Benko – a reference to the superyacht the young billionaire liked to invite his political friends aboard.
But Kurz quit. And the scandal that toppled him – a sprawling investigation by Austrian prosecutors into corruption – has only grown. Last month, Signa’s offices were raided over the matter. No charges have been brought against Benko. But the reputational fallout of his closeness to the Kurz government is pretty clear, and the gloves are off in the media that once gushed about him. Austria’s biggest tabloid, Kronen Zeitung, last month called Benko a “clown” with “more problems than he has millions”. He is the second largest shareholder in the newspaper.
As for leverage, Benko’s empire was built on it – directly and indirectly. Straight as financial rocket fuel that sent Signa from a small developer in the Innsbruck Alps to a Chrysler Building co-owner. Indirectly because Signa exploded into a world of cheap money: central banks dramatically 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 will lend to property developers on the terms they once did. And when it comes to the consumer, even residents of Benko’s high-end malls, apartments and hotels are seeing 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 to other real estate assets that are suffering declines in value. He has no problem raising funds from banks and new investors, he says.
As a private enterprise, of great complexity and opacity, it is difficult to subject it to independent judgement. It is a problem. Signa’s business model needs investors to believe in its narrative. In the current climate, it’s a harder sell.