FFor André Gaufer it was a clear thing. When he bought a condominium in the famous “Steglitzer Kreisel” residential tower in Berlin in autumn 2018, the 56-year-old was hoping for a secure real estate investment in booming Berlin. The building was to be completely renovated, and Gaufer, as managing director of his company PROfinance GmbH, wanted to rent out the finished 70 square meter apartment on the 19th floor. Everything should be ready in 2022, including underground parking space.
“This is my neighborhood, I love this location, the Steglitz roundabout is a landmark,” he says. The seller and developer was the CG Group of the well-known real estate developer Christoph Gröner.
Today the matter is no longer clear to Gaufer at all. The construction site seems to have come to a standstill. There have been several changes of ownership. And the new owner, the real estate company Adler Group based in Luxembourg, wants to redesign the whole project again at great expense.
Gaufer has been under pressure from Adler lawyers for months. He and the other co-owners should agree to the rescheduling without knowing the follow-up costs. He should hand over the parking lot. When the conversion will even be finished is unclear to him.
“My personal impression is that the project is to be upgraded in a way that will benefit the developer more than the owner,” says Gaufer.
Adler Group share crashes
The construction site at the Steglitz roundabout is symptomatic of the actions of the company behind it. The Adler Group with 70,000 apartments in Germany is considered to be intransparent and hopelessly over-indebted. Hedge funds are betting on decline. The stock crashed in early October 2021.
People like André Gaufer suddenly see themselves at the bad end of an exploitation chain made up of professional investors and developers who earn a lot of money in the real estate market and leave disappointed home buyers and cheated shareholders behind. While major players are even worried about the stability of the German real estate market, German financial regulators seem to have noticed little of any of this.
The trigger for the latest Adler turbulence is the British hedge fund manager Fraser Perring. In the middle of this week, his company Viceroy posted a comprehensive report on the Internet accusing Adler of artificially inflating the balance sheet and conducting non-transparent transactions.
The company “serves its shadow directors and shareholders as a channel to systematically enrich themselves to the detriment of bondholders, shareholders and minority shareholders …”, the report says. The share price fell more than 20 percent.
Fraser Perring is no stranger. He was one of the first critics of the payment processor Wirecard, which went bankrupt after a fraud scandal. Perring is a short seller and is betting on a decline in Adler’s share price. It is now known that other hedge funds also have such short positions at Adler – that is, they are interested in the fact that things continue to decline.
Adler wants to sell tens of thousands of apartments
On October 4th, Adler board member Maximilian Rienecker announced the speedy sale of tens of thousands of apartments in order to get rid of debts and buy back shares. The company rejected the allegations in the Perring report “most sharply”. On October 8, Adler also promised to “hire external independent consultants and auditors to conduct a comprehensive review of the allegations”.
But how can it be that a listed company with around nine billion euros in real estate values on its balance sheet gets into such turbulence? In this case, a look at the company’s history will help. The starting point is the Adler Real Estate company, which emerged from Adlerwerke in Frankfurt – originally bicycles, later the famous typewriters.
Adler has specialized in real estate for 20 years and is based in Berlin. The stock always included rather problematic residential complexes in West Germany. An unprecedented participation pingpong began in 2019.
Adler Real Estate invested in the Israeli ADO Group. This group includes ADO Properties with 20,000 apartments, some of which have been refurbished at high cost – most of them in Berlin.
Then came the coup. Adler exchanged the managing directors. And in a swap transaction, ADO Properties took over the parent company Adler Real Estate itself. The company is now called the Adler Group and is based in Luxembourg.
In addition, the project developer Consus was bought – a spin-off from Christoph Gröner’s CG Group. Since then, the Steglitzer Kreisel has been part of the real estate carousel.
“For us a signal for the exit”
For Claudia Reich Floyd, head of the Germany office of the Canadian investor Hazelview, the whole process is a scandal. Hazelview held a small stake in Berlin-based ADO Properties until about two years ago. “The granddaughter company should take over the parent company – that is actually not allowed in Germany,” says Reich Floyd.
In addition, there was an astonishing personnel rogue: “The management proposed for the new Adler Group should be the same as at ADO Properties. A board of directors basically appoints itself. I have never seen anything like this in 20 years of intensive work with real estate companies, ”says Reich Floyd. “For us, at that time Timbercreek, that was a clear signal for the exit.”
The British hedge fund manager Perring not only criticizes the conspicuous corporate and personnel damage. He sees a network of profiteers around the Austrian Cevdet Caner, who became known in Germany through the collapse of his real estate service provider Level One.
As proof of this, Perring refers in his report to the large Luxembourg company Mezzanine IX Investors, one of the main shareholders of the Adler Group. According to the Luxembourg transparency register, the beneficial owners of mezzanines are Richard McNeill Bunning, Josef Schrattbauer and Gerda Caner, the wife of Cevdet Caner.
Josef Schrattbauer is Gerda Caner’s brother and involved in a conspicuous transaction in the Düsseldorf “Glasmacherviertel”, which Perring says is only intended to fake profits. It’s about a large construction project on 280,000 square meters that is practically fallow.
In an interview with WELT AM SONNTAG, Cevdet Caner rejects the allegations. “I’m 100 percent legally clean, unlike Fraser Perring,” Caner said. “What he does is pure slander. I will reject every single accusation in detail and take legal action against Perring in several countries under criminal law, civil law and with the regulatory authorities. ”
The role of Mezzanine IX is publicly available. “My influence is presented as a secret in the report, although it was always known that mezzanine exerts an influence on Adler and that I am indirectly involved in mezzanine. It’s not illegal. “
Adler is through on the capital markets for the time being
Nevertheless, Adler is through on the capital markets for the time being. “The company is quoted 70 percent below the fair value of the real estate, but the risks remain high,” writes Barclays analyst Sander Bunck.
According to data from financial services provider Bloomberg, Adler is in debt with 8.3 billion euros, but skeptics fear that the debt level could be even higher than it seems. In the credit markets, the probability of financial distress is estimated at almost 50 percent.
“In view of the current development, almost nothing surprises me anymore,” says Hazelview manager Reich Floyd. She also harshly criticizes the supervisory authorities in Germany. “When I told my colleagues in North America about what was going on, they almost fell off their chairs,” says the capital market expert: “The conditions in Germany or Luxembourg are obviously not very clear from a legal point of view. In some places Germany has little capital market experience, the financial supervisory authority seems to be overwhelmed. “
Hedge funds as watchdogs on the stock exchanges
A criticism shared by other actors. “It almost seems as if Fraser Perring has been more effective in ensuring hygiene in Germany’s financial center than BaFin in recent years,” says tech investor Philipp Klöckner.
For him, the often scolded hedge funds play an important role on the stock exchanges. The watchdogs, who in case of doubt bet large amounts against companies, would ensure that windy managers at least sleep more restlessly.
Surprisingly, however, Europe’s largest housing company Vonovia could thwart Fraser Perring’s plans. On October 8th, the Bochum company jumped to the side of the Adler main shareholder Aggregate with a loan in the three-digit million range.
In return, Vonovia has secured a purchase option for 13.3 percent of the Adler shares at EUR 14 per share. Vonovia can exercise the purchase option within 18 months. Should the group strike, the share of aggregates would be halved. “Nobody has an interest in an unstable eagle,” says Vonovia.
Gaufer, the apartment buyer from Steglitz, can only watch the goings-on without taking any action. He has filed a lawsuit against the Adler Group for compliance with the original purchase agreement. The Charlottenburg District Court has accepted the lawsuit and negotiations will take place soon. But now he fears that the building could no longer be finished. He says: “Berlin’s next big ruin may be built here.”
“Everything on shares” is the daily stock market shot from the WELT business editorial team. Every morning from 7 a.m. with our financial journalists. For stock market experts and newcomers. Subscribe to the podcast on Spotify, Apple Podcast, Amazon Music and Deezer. Or directly via RSS feed.