The Spectacular Crash of a $30 Billion Property Empire

René Benko was a high school dropout and convicted criminal. But by 2018, he was at the pinnacle of global real estate.

His company, Signa Holding, launched a glassy, J-shaped skyscraper on the banks of the River Elbe in Hamburg, Germany. The design of the 800-foot tower resembled a chart showing exponential growth. Hamburg’s mayor, the future German Chancellor Olaf Scholz , lauded Signa’s good reputation with banks when the city picked the developer to build the tower.

“Signa is financially strong,” he said. It wasn’t.

Benko’s sprawling, $30 billion empire of trophy real estate and department stores has imploded into the biggest property bankruptcy in Europe since the global financial crisis. The mess threatens to unleash significant losses on scores of lenders and investors and freeze half-built developments in numerous city centers. Stakes in Manhattan’s Chrysler building , upscale British retailer Selfridges and sporting- goods groups in the U.S. and Europe face the block. Auctioneers are selling off Signa’s bookshelves, doormats, 700-bottle wine collection and a diamond-shaped award for Europe’s 2021 real-estate brand of the year.

The Hamburg tower is halted—leaving a 330-foot tall concrete stump. The unravelling marks a dramatic reversal for the self-made entrepreneur, who once lavished backers with hops on his yacht, a top-of-the-line Bombardier Global Express jet and trips to Signa’s multiple Austrian hunting grounds, complete with a shooting guide on the company payroll.

Left tallying their losses are heirs to the Tetra-Pak and Peugeot family fortunes; billionaire Ron Burkle ; and marquee sovereign-wealth funds from Singapore, Saudi Arabia and the United Arab Emirates. Dozens of banks lent money, including Citigroup and Swiss bank Julius Baer, whose chief executive resigned on Feb. 1 after the bank wrote off $700 million on loans tied to Signa. Spokespeople for Citigroup, Julius Baer, Peugeot Invest , Singapore’s GIC, and the UAE’s Mubadala declined to comment. The others didn’t respond to requests for comment.

Insolvency administrators say they are still getting to the bottom of the group’s corporate structure. But public filings, investors and former employees paint a picture of an empire that combined persuasive salesmanship with extreme financial engineering—an unsteady foundation that crumbled when the low interest rate era ended. In fundraising presentations, Signa told investors it was offering conservative, low-debt investments in iconic properties to be held for generations. Investors said they have since learned through Signa’s legal filings the companies had far more debt than they knew.

Many were invested in discrete parts of the larger company, unaware of convoluted cross-investments and large amounts of borrowing across hundreds of vehicles. An attorney for Benko said a list of questions sent by The Wall Street Journal contained “credit-damaging” and inaccurate allegations, but declined to provide specifics.

Some of Benko’s associates disagree that Signa’s structure was at fault, but rather see the implosion as a result of herd behaviour by lenders. Former Austrian Chancellor Alfred Gusenbauer, who served on Signa company boards, told Austrian state radio in January that the group overextended in retail, draining cash, and that the European Central Bank told banks not to provide more financing. ECB supervisory board chairman Andrea Enria has called that suggestion bizarre, and said Signa wasn’t targeted, but rather part of a broader examination of banks’ commercial real-estate exposure.

Benko, 46, was raised with modest means in Innsbruck, the quaint Austrian city nestled in the Alps. He was a star junior indoor climber and, at 17, dropped out of high school and began converting attic lofts, he has said in Austrian media interviews. He said he raised money from an heir to a gas station fortune, and quickly built up his business, expanding throughout the 2000s. He ran into trouble in 2012, convicted of an elaborate scheme in which prosecutors said he commissioned a former Croatian prime minister to push Italian officials including Prime Minister Silvio Berlusconi to help contest a tax bill on Signa-owned Italian properties.

Though the tax bill wasn’t reduced and the court said money never changed hands, a judge called it a “model case of corruption,” Austrian media reported at the time. Benko was sentenced to the equivalent of probation. It could easily have been a fatal business blow. Such convictions are typically toxic in the eyes of the large lenders and major investors that fuel the market. Instead, Benko trained his salesman skills at wealthy European families who could be swayed by his personal pitch, former employees said. He met scions of one family fortune after another for dinners over glasses of Château Lynch-Bages, which sells for $200 a bottle, they said. He plopped down a specially made hard-bound book half the size of his desk. Paging through photos of property after property, he would tell stories behind the deals and rattle off detailed numbers from memory, staring into the eyes of his would-be investors for what some said were uncomfortably long periods.

Officially, Benko wasn’t in charge. Around the time of his conviction, he structured the companies so he was neither Signa’s chief executive nor on its executive board, instead serving as chairman of an advisory board. But inside Signa, Benko ran the show, making critical decisions and appeared indistinguishable from a normal CEO, former employees said. Funds eventually rolled in from Switzerland’s Falcon Bank and Ernst Tanner , the chairman of chocolate maker Lindt & Sprüngli and from local Austrian lenders. Signa snapped up buildings in Vienna’s historic “Golden Quarter” and department stores like Munich’s Oberpollinger. Benko boasted Signa was second only to the Catholic Church in owning Vienna property. One key to Signa’s growing empire was a financial maneuver in which Benko’s companies functioned as both landlord and tenant for department stores. This allowed Signa to reap outsize benefits by moving money from its department store business to its landlord business through hiked rents, former Signa employees involved said. That extra rental income was worth far more in the landlord arm through what a former employee called “multiple arbitrage.”

Long-term leases instantly increase the value of properties substantially—and investors tend to value income at landlords at more than 20 times the annual proceeds. At retailers, where business is seen as more fickle, investors value it at less than half that level. This allowed the real estate unit to borrow and raise investment based on the higher valuations. In 2012, Signa joined with mining magnate Beny Steinmetz to buy a portfolio of Karstadt department stores, a chain that dots Germany. The following year, Signa raised rents on a chunk of them and extended the leases to 30 years in return for upfront cash payments. Signa’s Karstadt unit reported the total amount it owed for leases jumped to €3.9 billion, up from €3.3 billion the prior year, according to corporate filings.

A person close to Steinmetz said the joint venture with Signa lasted only three years and that his team wasn’t involved in day-to-day management. He added the Steinmetz organization hasn’t had any contact with Benko or Signa since 2015. Benko and others at Signa justified the rent hikes by saying the department stores had been paying below-market rates, and that Signa would modernize and turn around the money-losing businesses so they could eventually afford the higher payments, former employees said. High-profile acquisitions like Karstadt and the growing roster of wealthy backers helped Benko attract high-profile allies. Former Morgan Stanley Chairman Walid Chammah advised him on fundraising; Gusenbauer, the former Austrian chancellor, and a deputy chancellor both joined his board, and the Peugeot family invested .

The value of properties reported by his two main real-estate companies rose to €3.6 billion in 2014, surpassed €10 billion in 2017 and more than €18 billion by 2020—extraordinary growth in a slow-moving sector. Luxuries piled up, including a ski chalet, fine art, two private jets and the Roma, a 203-foot yacht, which Benko parked in front of Europe’s annual real estate conference in Cannes, France, former employees said. Signa purchased a stake in two Austrian newspapers in 2018, and further expansions in retail gave it a giant department store empire across Austria, Germany, Italy and Switzerland.

Benko pushed into the U.S. in 2019 with a splashy purchase: Signa and a partner paid about $150 million for the Chrysler Building, giving each a 50% stake. Photos of the art deco skyscraper went up around Signa’s offices. As they grew, Signa’s real-estate companies boasted high profits—on paper, at least. Signa called itself “the best performing real-estate company in Europe” in a 2018 investor presentation Between 2017 and 2021, the main real-estate unit, Signa Prime, had a combined €3.4 billion in profits, it said in Austrian corporate filings.

But all of Signa’s profits over that period were from paper gains. Signa marked up the values of its own properties by €4 billion, meaning the company would have otherwise reported substantial losses. In the same period, Signa Prime spent more on interest payments and dividends—€1.9 billion—than the €1.6 billion it received in rental revenue, an unusual situation for a large property owner. Pushing up values was a key focus within the company, former executives said. Employees focused heavily on appraisals, giving rent projections and other evidence to outside appraisers in a bid to get high values, according to those employees. Many investors and lenders relied on the outside appraisals. Dividends were based largely on property values, so higher values boosted returns. Appraisers valued the company’s office properties at 41 times the income they produced in 2021, corporate filings show. Comparable publicly traded office companies’ property portfolios were valued around 20 to 25 times income, according to Green Street, a real-estate advisory firm.

Signa’s figure “doesn’t make sense for any portfolio,” said Peter Papadakos , head of European Research at Green Street. “That’s something I’ve never seen for listed office companies.” He said Signa’s numbers for its hotel and retail properties—valued at 30 times annual income in 2021—were similarly off the mark. Rising paper values allowed Benko to boast of low debt ratios, hovering around 50% of building values, he told investors, according to presentations. That left a healthy buffer in case the market turned.

Some properties, however, had a layer of debt on corporate shells that sat between the properties and the real-estate company, which itself had numerous layers of debt. Benko’s 50% calculation typically omitted billions of dollars in liabilities that increasingly weighed on its finances. Called Genussscheine, a hybrid between debt and equity, it promised investors a share of any profits in a year from Signa companies or individual projects. Even though under German accounting principles it isn’t technically categorised as debt, interest was steep—in the high single digits—on some of these notes and they had to be repaid or refinanced upon maturity. As Signa grew and Covid hit, rents proved unsustainable at the department stores. In 2020, Signa’s German department store unit filed for bankruptcy. To make sure the company would continue to pay the high rents that underpinned Signa’s property values, Signa gave the unit a 200-million-euro lifeline in the form of a loan that was later forgiven. Meanwhile, Signa needed money to fund dividends and an array of large developments started in city centers around Europe.

In December 2021, a unit of the Benko empire that sold bike and tennis gear went public by merging with a special-purpose acquisition company established by Ron Burkle’s Yucaipa. Citigroup gave loans and big U.S. mutual funds bought bonds. A Benko family trust owned nearly half of the stock, which was worth $3.2 billion at its peak. Signa joined with Central Group—run by Thailand’s Chirathivat family—to pay $5 billion for Selfridges, the tony British department store chain known for ostentatious displays on London’s Oxford Street. The Saudi Public Investment Fund helped fund the deal. The empire wobbled in late 2022, when a triple whammy hit. Prosecutors in Austria raided Signa Holding’s offices as part of a sprawling probe into alleged government corruption.

Galeria, Signa’s flagship German department store, filed for insolvency in October 2022, after limping for years. And the sports arm called on Benko for hundreds of millions of dollars in emergency money because of plunging sales. Benko started showing signs of stress. During the day, he would hype himself up by drinking over half a dozen espressos and chain smoke one Cuban cigar after another, filling his jet’s cabin with smoke, former employees said. He had a bad temper, the former employees said. In one meeting, he called his chief financial officer a “fette Sau,” or a “fat pig,” according to a person who was present. In spring 2023, Signa Development, one of Benko’s many arms, sold some buildings to raise cash. But the proceeds didn’t stay with the company, according to people familiar with the matter and statements from ratings agencies.

Instead of being reinvested into the company and ongoing developments as required under the terms of bonds it issued, the cash flowed to other Signa companies, the people said. Fitch Ratings called it a “breach of financial separation” that wasn’t supposed to happen. In August, Signa sold a resort overlooking Lake Garda to a Benko family trust. Signa wasn’t able to find a loan crucial to paying for the rest of the Hamburg skyscraper that was under construction and stopped paying its contractor. In October, Signa Holding backed out of paying Signa’s U.S. sports retailer another €150 million it had promised. The publicly traded retailer declared bankruptcy days later.

A €200 million bond went unpaid by Signa Prime the next month. The defaults sparked a cascade of insolvencies, first by Benko’s holding company, and then by Signa’s two main real-estate companies. Two days before the holding company filed for bankruptcy, it sold a ski chalet to an entity controlled by the “Laura Foundation,” a Benko family trust that shares the name of one of Benko’s daughters, according to corporate filings. More insolvencies within the Signa web are expected, and investors and lenders are bracing for the final bill. Bonds tied to Signa Development are trading at just 13 cents on the dollar, implying the debt investors think they may lose virtually everything. Numerous Signa development sites have stalled, leaving boarded-up sites in Munich, Berlin and Düsseldorf. The site of the 800-foot Hamburg tower sits idle, with Signa’s name on the fence covered with graffiti as politicians debate its future.

PARIS —Paris has long been a byword for luxurious living. The traditional components of the upscale home, from parquet floors to elaborate moldings, have their origins here. Yet settling down in just the right address in this low-rise, high-density city may be the greatest luxury of all.

Tradition reigns supreme in Paris real estate, where certain conditions seem set in stone—the western half of the city, on either side of the Seine, has long been more expensive than the east. But in the fashion world’s capital, parts of the housing market are also subject to shifting fads. In the trendy, hilly northeast, a roving cool factor can send prices in this year’s hip neighborhood rising, while last year’s might seem like a sudden bargain.

This week, with the opening of the Olympic Games and the eyes of the world turned toward Paris, The Wall Street Journal looks at the most expensive and desirable areas in the City of Light.

The Most Expensive Arrondissement: the 6th

Known for historic architecture, elegant apartment houses and bohemian street cred, the 6th Arrondissement is Paris’s answer to Manhattan’s West Village. Like its New York counterpart, the 6th’s starving-artist days are long behind it. But the charm that first wooed notable residents like Gertrude Stein and Jean-Paul Sartre is still largely intact, attracting high-minded tourists and deep-pocketed homeowners who can afford its once-edgy, now serene atmosphere.

Le Breton George V Notaires, a Paris notary with an international clientele, says the 6th consistently holds the title of most expensive arrondissement among Paris’s 20 administrative districts, and 2023 was no exception. Last year, average home prices reached $1,428 a square foot—almost 30% higher than the Paris average of $1,100 a square foot.

According to Meilleurs Agents, the Paris real estate appraisal company, the 6th is also home to three of the city’s five most expensive streets. Rue de Furstemberg, a secluded loop between Boulevard Saint-Germain and the Seine, comes in on top, with average prices of $2,454 a square foot as of March 2024.

For more than two decades, Kyle Branum, a 51-year-old attorney, and Kimberly Branum, a 60-year-old retired CEO, have been regular visitors to Paris, opting for apartment rentals and ultimately an ownership interest in an apartment in the city’s 7th Arrondissement, a sedate Left Bank district known for its discreet atmosphere and plutocratic residents.

“The 7th was the only place we stayed,” says Kimberly, “but we spent most of our time in the 6th.”

In 2022, inspired by the strength of the dollar, the Branums decided to fulfil a longstanding dream of buying in Paris. Working with Paris Property Group, they opted for a 1,465-square-foot, three-bedroom in a building dating to the 17th century on a side street in the 6th Arrondissement. They paid $2.7 million for the unit and then spent just over $1 million on the renovation, working with Franco-American visual artist Monte Laster, who also does interiors.

The couple, who live in Santa Barbara, Calif., plan to spend about three months a year in Paris, hosting children and grandchildren, and cooking after forays to local food markets. Their new kitchen, which includes a French stove from luxury appliance brand Lacanche, is Kimberly’s favourite room, she says.

Another American, investor Ashley Maddox, 49, is also considering relocating.

In 2012, the longtime Paris resident bought a dingy, overstuffed 1,765-square-foot apartment in the 6th and started from scratch. She paid $2.5 million and undertook a gut renovation and building improvements for about $800,000. A centrepiece of the home now is the one-time salon, which was turned into an open-plan kitchen and dining area where Maddox and her three children tend to hang out, American-style. Just outside her door are some of the city’s best-known bakeries and cheesemongers, and she is a short walk from the Jardin du Luxembourg, the Left Bank’s premier green space.

“A lot of the majesty of the city is accessible from here,” she says. “It’s so central, it’s bananas.” Now that two of her children are going away to school, she has listed the four-bedroom apartment with Varenne for $5 million.

The Most Expensive Neighbourhoods: Notre-Dame and Invalides

Garrow Kedigian is moving up in the world of Parisian real estate by heading south of the Seine.

During the pandemic, the Canada-born, New York-based interior designer reassessed his life, he says, and decided “I’m not going to wait any longer to have a pied-à-terre in Paris.”

He originally selected a 1,130-square-foot one-bedroom in the trendy 9th Arrondissement, an up-and-coming Right Bank district just below Montmartre. But he soon realised it was too small for his extended stays, not to mention hosting guests from out of town.

After paying about $1.6 million in 2022 and then investing about $55,000 in new decor, he put the unit up for sale in early 2024 and went house-shopping a second time. He ended up in the Invalides quarter of the 7th Arrondissement in the shadow of one Paris’s signature monuments, the golden-domed Hôtel des Invalides, which dates to the 17th century and is fronted by a grand esplanade.

His new neighbourhood vies for Paris’s most expensive with the Notre-Dame quarter in the 4th Arrondissement, centred on a few islands in the Seine behind its namesake cathedral. According to Le Breton, home prices in the Notre-Dame neighbourhood were $1,818 a square foot in 2023, followed by $1,568 a square foot in Invalides.

After breaking even on his Right Bank one-bedroom, Kedigian paid $2.4 million for his new 1,450-square-foot two-bedroom in a late 19th-century building. It has southern exposures, rounded living-room windows and “gorgeous floors,” he says. Kedigian, who bought the new flat through Junot Fine Properties/Knight Frank, plans to spend up to $435,000 on a renovation that will involve restoring the original 12-foot ceiling height in many of the rooms, as well as rescuing the ceilings’ elaborate stucco detailing. He expects to finish in 2025.

Over in the Notre-Dame neighbourhood, Belles demeures de France/Christie’s recently sold a 2,370-square-foot, four-bedroom home for close to the asking price of about $8.6 million, or about $3,630 a square foot. Listing agent Marie-Hélène Lundgreen says this places the unit near the very top of Paris luxury real estate, where prime homes typically sell between $2,530 and $4,040 a square foot.

The Most Expensive Suburb: Neuilly-sur-Seine

The Boulevard Périphérique, the 22-mile ring road that surrounds Paris and its 20 arrondissements, was once a line in the sand for Parisians, who regarded the French capital’s numerous suburbs as something to drive through on their way to and from vacation. The past few decades have seen waves of gentrification beyond the city’s borders, upgrading humble or industrial districts to the north and east into prime residential areas. And it has turned Neuilly-sur-Seine, just northwest of the city, into a luxury compound of first resort.

In 2023, Neuilly’s average home price of $1,092 a square foot made the leafy, stately community Paris’s most expensive suburb.

Longtime residents, Alain and Michèle Bigio, decided this year is the right time to list their 7,730-square-foot, four-bedroom townhouse on a gated Neuilly street.

The couple, now in their mid 70s, completed the home in 1990, two years after they purchased a small parcel of garden from the owners next door for an undisclosed amount. Having relocated from a white-marble château outside Paris, the couple echoed their previous home by using white- and cream-coloured stone in the new four-story build. The Bigios, who will relocate just back over the border in the 16th Arrondissement, have listed the property with Emile Garcin Propriétés for $14.7 million.

The couple raised two adult children here and undertook upgrades in their empty-nester years—most recently, an indoor pool in the basement and a new elevator.

The cool, pale interiors give way to dark and sardonic images in the former staff’s quarters in the basement where Alain works on his hobby—surreal and satirical paintings, whose risqué content means that his wife prefers they stay downstairs. “I’m not a painter,” he says. “But I paint.”

The Trendiest Arrondissement: the 9th

French interior designer Julie Hamon is theatre royalty. Her grandfather was playwright Jean Anouilh, a giant of 20th-century French literature, and her sister is actress Gwendoline Hamon. The 52-year-old, who divides her time between Paris and the U.K., still remembers when the city’s 9th Arrondissement, where she and her husband bought their 1,885-square-foot duplex in 2017, was a place to have fun rather than put down roots. Now, the 9th is the place to do both.

The 9th, a largely 19th-century district, is Paris at its most urban. But what it lacks in parks and other green spaces, it makes up with nightlife and a bustling street life. Among Paris’s gentrifying districts, which have been transformed since 2000 from near-slums to the brink of luxury, the 9th has emerged as the clear winner. According to Le Breton, average 2023 home prices here were $1,062 a square foot, while its nearest competitors for the cool crown, the 10th and the 11th, have yet to break $1,011 a square foot.

A co-principal in the Bobo Design Studio, Hamon—whose gut renovation includes a dramatic skylight, a home cinema and air conditioning—still seems surprised at how far her arrondissement has come. “The 9th used to be well known for all the theatres, nightclubs and strip clubs,” she says. “But it was never a place where you wanted to live—now it’s the place to be.”

With their youngest child about to go to college, she and her husband, 52-year-old entrepreneur Guillaume Clignet, decided to list their Paris home for $3.45 million and live in London full-time. Propriétés Parisiennes/Sotheby’s is handling the listing, which has just gone into contract after about six months on the market.

The 9th’s music venues were a draw for 44-year-old American musician and piano dealer, Ronen Segev, who divides his time between Miami and a 1,725-square-foot, two-bedroom in the lower reaches of the arrondissement. Aided by Paris Property Group, Segev purchased the apartment at auction during the pandemic, sight unseen, for $1.69 million. He spent $270,000 on a renovation, knocking down a wall to make a larger salon suitable for home concerts.

During the Olympics, Segev is renting out the space for about $22,850 a week to attendees of the Games. Otherwise, he prefers longer-term sublets to visiting musicians for $32,700 a month.

Most Exclusive Address: Avenue Junot

Hidden in the hilly expanses of the 18th Arrondissement lies a legendary street that, for those in the know, is the city’s most exclusive address. Avenue Junot, a bucolic tree-lined lane, is a fairy-tale version of the city, separate from the gritty bustle that surrounds it.

Homes here rarely come up for sale, and, when they do, they tend to be off-market, or sold before they can be listed. Martine Kuperfis—whose Paris-based Junot Group real-estate company is named for the street—says the most expensive units here are penthouses with views over the whole of the city.

In 2021, her agency sold a 3,230-square-foot triplex apartment, with a 1,400-square-foot terrace, for $8.5 million. At about $2,630 a square foot, that is three times the current average price in the whole of the 18th.

Among its current Junot listings is a 1930s 1,220-square-foot townhouse on the avenue’s cobblestone extension, with an asking price of $2.8 million.