‘Prime Is Fine’ in Real Estate. Except When It’s Not

A charismatic entrepreneur pulls in wealthy investors to amass a portfolio of some of the finest prime real estate. Banks and bondholders are persuaded to provide the leverage. What could possibly go wrong?

Austrian property giant Signa Holding GmbH is proving that even top-quality assets can support only so much debt — and that rich shareholders have a limited appetite to keep throwing in money.

Signa is the creation of tycoon Rene Benko. He is no stranger to controversy. Benko was convicted in 2012 of making improper payments to officials and cleared earlier this year in a bribery case. A colorful past can put off banks and partners, mindful of the risk to their own reputations. But Benko got the support required to invest in assets including the Chrysler building in New York and Selfridges Group, owner of the eponymous London department store.

This €23 billion ($25 billion) empire is now in crisis. Signa Prime Selection AG, the subsidiary housing most of the assets, has asked investors to provide as much as €2 billion in funding in the coming months, Bloomberg News revealed Wednesday.

Benko has some extremely rich co-investors, including Hans-Peter Haselsteiner, the industrialist behind construction company Strabag SE, and billionaire Klaus-Michael Kuehne. They have had enough, pushing Benko to cede control earlier this month (he retains a majority stake). A restructuring expert has taken charge.

Signs of difficulty have been building for some time. The European Central Bank asked lenders to take provisions against their Signa exposure, Bloomberg News reported in August, although some officials thought this risked stigmatizing the company in the eye of lenders. For sure, the central bank’s move will not have helped Signa refinance its debts.