Das Monopoly Game

Karstadt-Kaufhof is a big, fat real estate deal

main 0204151709 DPA – Galeria Kaufhof Karstadt department stores retail Germany Signa Hudson s Bay Rene Benko Austrian
There’s no such thing as owning too much prime real estate in Germany. Source: DPA.

René Benko dropped out of school at the age of 17 to turn dusty attics in his native Innsbruck into attractive lofts. He had a nose for it and quickly became a successful entrepreneur. Now 41, Mr. Benko owns €12 billion in real estate in Austria, Germany, Switzerland and Italy through his company Signa.

His 18-year old firm, which also operates retail stores and online shops, concluded its latest deal in Germany on Tuesday, announcing the long-anticipated merger of department stores Karstadt and Galeria Kaufhof. The two chains are household names on Germany’s inner-city shopping streets.

Signa bought Karstadt in 2014 and the renowned, high-end KaDeWe, or Department Store of the West in Berlin, once a Cold War showcase of Western capitalism. After cutting jobs and subletting store space, Karstadt turned its first profit in 12 years last year. Mr. Benko’s company also owns 17 properties that house KaDeWe and some of the 79 Karstadt shops. Hudson’s Bay, the Canadian owner of Lord & Taylor and Saks Fifth Avenue in the US, entered the German market in 2015. It bought 96 Galeria Kaufhof stores from Metro, including 59 buildings.

By merging the two department chains, Mr. Benko will lay hands on the majority of the 59 Kaufhof buildings in Germany. The deal, subject to antitrust approval, is largely based on folding properties from Hudson’s Bay into the Austrian firm. Signa will buy two stores outright and obtain a 50.1 percent stake in two funds that own the remaining 57 outlets. Mr. Benko will co-own real estate in cities such as Cologne and Düsseldorf. The properties have a value of €3.25 billion ($3.8 billion).

main 0204203467 imago Viennareport – Rene Benko wife Nathalie 2016 Signa property real estate retail Karstadt Galeria Kaufhof merger Hudson s Bay
Ready to rock it in Berlin: René and Nathalie Benko. Source: Imago.

It’s exactly the kind of business for which Mr. Benko has a knack: Class A properties in urban centers, where demand for retail or commercial space is high. The merger is likely to lead to the closure of some shops. This will free up space for new retail tenants or redevelopment into offices or hotels. The new department stores could also downsize existing shops, giving room to other retailers and create a shopping mall experience.

Signa, which counts Abu Dhabi’s sovereign wealth fund and a pension fund for protestant pastors as investors, has already followed this route with some Karstadt shops, allowing supermarkets such as Aldi and Edeka or optics chain Apollo to rent space on Karstadt’s floors. One outlet in Berlin was closed last year and is currently stripped to the bone to turn it into offices for online retailer Zalando and retail space for restaurants, supermarkets, and drug stores.

Even if the Karstadt-Kaufhof combination fails, Mr. Benko will own dozens of new buildings in the heart of German cities, where prices have been going through the roof. That’s exactly the place where he feels at home.

Gilbert Kreijger is an editor with Handelsblatt Global. To contact the author: kreijger@handelsblatt.com

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