Europe’s Signa toppled in property rout

Property and retail giant Signa declared insolvency on Wednesday after last-ditch attempts to secure fresh funding failed, the biggest casualty so far of Europe’s property crash.

Controlled by Austrian magnate Rene Benko, the group is an owner of New York’s Chrysler Building as well as several high-profile projects and department stores across Germany, Austria and Switzerland.

Signa Holding GmbH said in a statement that it would apply to a Vienna court to begin insolvency proceedings, under its own administration, and start a reorganisation of the group.

“The aim is the orderly continuation of business operations within the framework of self-administration and the sustainable restructuring of the company,” it said.

The steepest rise in borrowing costs in the 25-year history of the euro has caused property prices to tumble in Germany, where much of the group’s business is anchored.

Signa blamed its problems on external factors affecting its property business and pressure on high-street shopping.

The group, which values its assets at 27 billion euros ($29 billion), is made up of numerous subsidiaries.
Its insolvency puts a question mark over several high-profile construction projects in Germany, including one of the country’s tallest buildings.

It had been making steady progress on the planned 64-story Elbtower skyscraper in Hamburg, until it stopped paying the builder, who halted work. Construction has also halted at five other Signa sites in Germany.

Signa has borrowed heavily from banks, including Switzerland’s Julius Baer, which disclosed that it had an exposure of more than 600 million Swiss francs ($678 million).

Other lenders include Austria’s Raiffeisen Bank International.

Earlier this month, one of its executives, Hannes Moesenbacher, identified a large exposure to a client of 755 million euros, referring to Benko’s group, according to a person with knowledge of the matter.

BayernLB and Helaba, the regional state-backed banks for two of Germany’s most affluent states, Bavaria and Hesse, have each lent the group several hundreds of millions of euros, said people with knowledge of the matter.

Germany, Europe’s largest economy, is in the middle of a property crisis after a sharp rise in interest rates and building costs forced some developers into insolvency and put deals and construction on hold.

The real estate sector was a bedrock of Germany’s economy for years, accounting for roughly a fifth of output and one in 10 jobs. Fuelled by low interest rates, billions were funneled into property, which was viewed as stable and safe.

Now a sharp rise in rates has put an end to the run, tipping some developers into insolvency as deals freeze and prices fall.

Weakness in commercial real estate in the United States as offices remain empty after the pandemic and the struggles of major property developers in China have focused global attention on the sector.