Assets including Chrysler Building: 38 trillion won
Failed to raise funds due to high interest rates for the first time in 25 years
Concerns over serial global real estate-banking blows
Risk of loss from overseas investment in the domestic financial sector
Signa, an Austrian real estate and distribution company that owns global landmark buildings, including the Chrysler Building in New York, USA, filed for bankruptcy protection on the 29th of last month (local time). A company with assets exceeding 38 trillion won is raising the white flag as it is unable to repay its maturing loans due to high interest rates and a cold market in commercial real estate.
Following the collapse of the U.S. shared office company WeWork and the collapse of major European real estate conglomerates, regulators and markets around the world are concerned about the impact it will have on commercial real estate and financial institutions. The Wall Street Journal (WSJ) evaluated it as “one of the most dramatic falls in the real estate market.”
Cigna Group announced on this day that it had applied for bankruptcy protection at the Vienna Court in Austria and that it would begin restructuring its debt through ‘self-management.’ Even world landmark real estate, which major shareholder René Benco boasted was “at the level of the British royal family,” could not withstand the aftermath of high interest rates. JP Morgan estimates that the debt of Cigna Group’s major subsidiaries will amount to $14 billion.
Benko, the founder of Cigna, which had 27 billion euros (about 38 trillion won), was a famous figure in the global real estate market. In 2019, it attracted attention by jointly purchasing the Chrysler Building (excluding the site) for $150 million with RFR, an American real estate investment company. They also quickly purchased department stores in major European cities, such as Britain’s representative Selfridges Department Store and Berlin’s flagship Kadewe Department Store. Regarding the cause of this bankruptcy, Cigna Group said, “The impact of lower-than-expected investment returns in the distribution sector was significant.”
Reuters assessed that the highest interest rates in the 25-year history of the euro and the slump in German real estate, where Cigna’s assets were concentrated, were the main factors leading to the bankruptcy.
Founder Benco acquired assets by increasing debt even during high interest rates. He joined forces with Thai real estate conglomerate Central Group to acquire Swiss luxury department store chain Globus and promoted large-scale developments, including a 64-story tower in Hamburg, Germany. However, as the ‘low interest rate era’ came to a close, asset values fell and it became difficult to extend loan maturity. Before going bankrupt, Benco requested support from the United Arab Emirates (UAE) sovereign wealth fund Mubadala and activist fund Elliott to raise $600 million in short-term funds, but it ultimately failed.
Regulatory authorities and markets in each country are paying close attention to the future impact. “It is important that everyone who has invested (in Cigna), especially the bank, remains stable,” Austrian Chancellor Karl Nehammer told reporters. Reuters reported that Austria’s largest bank, Raiphasen, lost 755 million euros (approximately 1.07 trillion won) in loans to Cigna, and Switzerland’s Julius Baer Bank suffered a loss of 600 million Swiss francs (approximately 890 billion won). It was reported that it is expected to be seen.
The German economy, which has recently been ridiculed as the ‘sick man of Europe’, is also expected to have difficulty avoiding shocks. Signa’s 64-story building construction project in Hamburg, Germany had already been halted. If the real estate sector, which accounts for about 20% of the German economy, becomes unstable, it will have a significant impact on the overall economy. In addition, if Cigna Group begins to sell even part of its real estate, there is a possibility that it will further fuel the decline in commercial real estate prices and transfer the risk to European banks.
Global commercial real estate experienced an investment craze in the era of low interest rates, but was hit by a cold spell as working from home became more common during the pandemic. The United States is also suffering from the bankruptcy of shared office WeWork and rising vacancy rates.
Due to the global commercial real estate cold wave, the risk of loss in overseas investment in real estate by domestic financial institutions is also increasing. Recently, Mirae Asset Global Investments decided to sell four office buildings in Dallas, Texas, for about 23% less than the investment amount. The loss rate of the Frankfurt, Germany office building public offering fund launched by IGIS Asset Management in 2018 exceeded 80%. An official in the asset management industry said, “It is difficult to handle existing overseas assets, so new investments have almost stopped.”
New York =
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.