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Real estate magnate René Benko’s Signa Group is faltering. Their crisis is unlikely to remain an isolated case, says a real estate expert.
They are – or are being built – in a prime location. And they could one day generate a lot of profits. At least in theory. We are talking about large-scale construction projects such as the “Elbtower” in Hamburg’s Hafencity. René Benko and his Signa Group have invested heavily in the Elbtower. But now the machines on the construction site are at a standstill. Signa is threatened with ruin.
The problem: Benko’s empire is built on loans. And these loans are now becoming increasingly heavier. The construction costs and interest are to blame for this. Both have risen massively, especially in Germany, because the European Central Bank has combated inflation with interest rate increases.
Legend: The company empire of the dazzling Tyrolean entrepreneur René Benko is in danger of collapsing. Benko’s “Elbtower” skyscraper in Hamburg is at risk (Image: visualization of the construction project). Keystone/HAFENCITY HAMBURG GMBH
Expert Daniel Stocker from the internationally active real estate consulting firm Jones Lang LaSalle knows the problem: “Such a large real estate project usually takes several years. If construction prices rise by 30 percent or more during this time, as in Germany, the calculation originally made no longer works.
The risk had been known for a long time. Now it is materializing in the Signa case. Financial circles are speculating about how long it will take until the group goes bankrupt. A first Signa subsidiary in Germany has already declared bankruptcy.
Massive cluster risk
As complicated and confused as the situation of Benko’s corporate network appears, the principle of the credit crunch is simple: on the one hand, the construction projects are becoming more expensive, and on the other hand, the lending banks want to see more money and additional security. Things quickly become tight, as Stocker explains: “It doesn’t just cost you more to complete the project. You also have to pay the bank a lot more for the loan because the interest rates have risen.
Bank Julius Baer has reacted: it confirmed on Monday that it had granted a good 600 million francs in credit – to three different units in the Signa conglomerate. The bank has already written off 70 million of it. But the losses from this cluster risk could expand massively, say financial analysts.
Legend: It is currently unclear how well Julius Baer has secured itself with the extremely extensive lending. When asked, the bank simply said that part of the loans were secured by real estate. But only a part. Keystone/Ennio Leanza
This means: If the major debtor Signa collapses completely, some of the loans would be at massive risk. At worst, they would be more or less worthless. Signa’s construction projects only really benefit the creditor banks in the event of a crisis if the real estate properties can be financially exploited by the bank. For example, if the bank sells the properties to third parties.
Total loss “unlikely”
“In the case of the real estate developments currently mentioned in the media, they are about high-quality locations. It is unlikely that there will be a total loss here,” says expert Stocker. But when it comes to loans that are not secured by a mortgage, the initial situation is much more critical. How bad things will get in the Signa case remains to be seen. But Stocker expects that there could be further victims of the crisis in the real estate industry. Signa is hardly an isolated case.
Stocker concludes that others would certainly have benefited from the low interest rates for a long time: “Now the market environment has completely turned around. Others who have been on a similar journey will also feel this.” Investors in large commercial buildings are therefore facing difficult times. Especially those who are heavily dependent on loans.