Europe may be experiencing its most significant real estate meltdown since the global financial crisis. The abrupt ending of easy monetary policies and soaring interest rates have led the property and retail conglomerate Signa Holding GmbH to declare bankruptcy following its inability to secure funding.
Bloomberg reports that Signa, also the co-owner of New York's Chrysler building, has assets upwards of $25 billion as of the end of 2022. It filed for insolvency in Vienna on Wednesday.
"Despite considerable efforts in recent weeks, the necessary liquidity for an out-of-court restructuring could not be sufficiently secured," the company said.
Signa's current debt load totaled around $5.5 billion, according to creditor representative KSV1870. There are over 273 creditors impacted by the proceedings.
"From today's standpoint, it's impossible to predict whether further companies of the Signa Group will file for insolvency and whether it will lead to a domino-effect," said Karl-Heinz Götze, the head of insolvencies at the group.
Austrian tycoon Rene Benko heads Signa, which has commercial real estate properties across Europe and is a co-owner of New York's Chrysler building.
Austrian chancellor Karl Nehammer played down the collapse of Signa. He said, "What's really important is that all those who invested here, especially the banks, stay stable."
Earlier this week, analysts at Austria's Raiffeisen Bank International, one of Signa's top creditors, warned that the fallout might spark further CRE turmoil if properties must be offloaded.
"The aim is to continue business operations within the framework of self-administration," Signa said.
Bloomberg sources said Signa has been 'frantically' searching for $650 million in short-term liquidity, reaching out to Saudi Arabia's Public Investment Fund and Elliott Investment Management, among others.
The crash of Signa comes as global central banks have likely concluded the most aggressive interest rate tightening cycle in a generation to tame hot inflation. Fed swaps show interest rate cuts are forecasted to begin as early as May.
Furthermore, we don't need to expand on the CRE crisis as readers are well-informed about the rumblings this year. We leave you with a recent interview featuring Goldman's Allison Nathan and Scott Rechler, Chairman and CEO of RXR Realty.
Rechler told Nathan that the crisis in the CRE space was just beginning.
Recall in March, when several regional banks imploded, we noted "Why Small Banks Are In Big Trouble: As Hedge Funds Pile Into The New "Big Short," The Next' Credit Event' Emerges."
So what are the contagion risks with the implosion of Signa?