Ever wondered who really owns your flat? Anti-corruption expert and wealth campaigner Christoph Trautvetter tells Exberliner about his painstaking foray into the world of Berlin real estate – a market he sees dominated by anonymous billionaire landlords and so badly lacking transparency that it’s turned Germany into a hotbed of money laundering.
For the past three years, you have been researching the inner-workings of Berlin’s property market, and who owns what. What got you involved?
My expertise is in illicit financial flows and tax havens, but in 2017 I was approached by a local journalist investigating the Büchertisch, a sort of social book exchange being pushed out of Mehringhof in Kreuzberg by some investor. We discovered an investment fund from Jersey had bought the house in 2005 and that Lehman Brothers were involved. We ended up writing an article about it for the Tagesspiegel. In 2018, the building was sold to Blackstone, a big US private equity firm that recently bought close to 5000 apartments in Berlin. I thought it was a very interesting story and wanted to know more about who owns what in the city. In total, there are about two million flats in Berlin and more than a quarter are owned by private companies. I thought people should be able to know whose bank account their rent really goes into. But in many cases it’s impossible – not even the city knows.
What do you mean by ‘not even the city knows’?
In Germany the land register isn’t public, but surely transfers of ownership must be listed… In the real estate register you just find a load of subsidiaries. Deutsche Wohnen (DW), for example, has more than 100 companies that own their apartments. To find out how many apartments they own, you have to take this list to each of Berlin’s registry offices. Whether they actually give you the information is up to them. And, again, big players like the Pears brothers from the UK don’t appear on the registers at all. They have about 50 companies in Luxembourg who own around 6000 apartments in Berlin and the link between these companies is hidden behind shell companies in Cyprus and the British Virgin Islands.
Your study puts 12 top companies that own real estate in the city. The biggest one is Deutsche Wohnen, right?
Yes, with nearly 120,000 apartments, they are by far the biggest. But in a way DW are very transparent – they publish annual and even quarterly reports with several hundred pages of information on their apartments, average rents, profits and much more. Their biggest shareholder is Blackrock, but there are lots of other institutional investors that invest money from pension plans, life-insurance policies, etc. like the Ärzteversorgung Westfalen (Pension Fund of the Doctors of Westphalia). Usually they own more than half of the shares of big companies. But not even DW knows everyone who owns their stock. So if you are a dictator’s son and you stole €1 billion and moved it around different banks and from there into a fund and into DW, they are not going to know.
Later this month, you’re speaking at a Disruption Network Labconference and giving a guided tour of some of the Berlin realestate owned by “anonymous investors” – who are they?
When you think of anonymously owned real estate, what comes to mind are these stories of letterbox companies secretly owned by oligarchs and kleptocrats, or billionaires wanting to evade tax. Or you think of the local criminal or the mafia strawmen buying real estate. You definitely find some of these in Berlin, but they make up just a small share of dirty money. If you have bigger amounts to invest, things usually get more complicated.
One element is the use of cash. In Italy it is forbidden to buy anything for more than €1000 in cash. But in Germany, you can bring suitcases full of cash and buy a house.
Then you might use one of the investment funds that own five to 10 percent of Berlin apartments for example. These funds are very difficult to trace and often completely anonymous. Especially those that operate via the Cayman Islands, Jersey, the Isle of Man, Gibraltar or any other of the many secrecy jurisdictions. There’s no way to find out who’s behind them. Transparency International exposed the German real estate market as a hotbed of money laundering, especially favoured by the Italian mafia.
Why is that and who is involved?
One element is the use of cash. In Italy it is forbidden to buy anything for more than €1000 in cash. But in Germany, you can bring suitcases full of cash and buy a house. And obviously the mafia has a lot of cash, right? Another reason is that if you are a drug dealer and have €1 billion worth of assets you don’t want to buy real estate in Italy, because there is a good chance that the Guardia di Finanza is going to come and take it away. In Germany no one’s going to ask questions – there’s no transparency of real estate ownership, no checks. In 2018 there was a case where 77 flats worth €10 million were seized from a Neukölln family clan. They had bought them with criminal cash and were only found out much later. There’s very little control. We have the same rules that the whole world has: when someone comes to a car dealer or estate agent with a suitcase full of cash and they and it suspicious, they have to report it. But the enforcement is really weak. Take the guy who worked as security at Bode Museum and helped to steal the 100kg gold coin two years ago: he never had any money and then suddenly comes with a bag full of cash to buy an apartment and no one led a suspicious transaction report!
In Germany no one’s going to ask questions – there’s no transparency of real estate ownership, no checks. In 2018 there was a case where 77 flats worth €10 million were seized from a Neukölln family clan.
But what about Germany’s new anti-money laundering measures? Notaries are supposed to report suspicious transactions and carry out background checks, from now on including that foreign companies are registered with the German transparency register. Why isn’t it working?
Take the Pears brothers from the UK. They invest through two companies from the British Virgin Islands but they use intermediaries in Luxembourg and Cyprus. So they don’t have to register because EU companies are excluded from that duty. In theory that’s fine because all EU countries are supposed to have open public registers listing the companies’ beneficial owners. So in Luxembourg everyone can now see that those companies belong to the Pears brothers. But Cyprus hasn’t implemented the law yet and there are still many other ways around registration. At least now the Berlin government has hired three people to check on the notaries.
But how can investors still manage to stay anonymous despite these new controls?
For example, what you can do is open an investment fund in the Cayman Islands, where the investment manager will mix the money of nine legitimate clients with your non-legitimate money, put it into the investment fund and no one will ever know you invested. If this investment fund then buys something, in the transparency register you would just see the name of the investment manager. And he will say there is no official owner – because only those who own more than 25 percent have to register – so the investment manager will say that ownership is split between many people and that he is the one who makes the decisions. So his name will be there and the notary will say that it’s perfectly fine.
How do you spot real estate that’s being used to ‘store’ money?
There’s the story of The Bishops Avenue in London with Russian oligarchs buying fancy villas left empty. We have a few notorious housing blocks here in Berlin: for example around Alexanderplatz or in Mehringhof several apartments are left empty and decaying. Some anonymous investors of dirty money just rent out apartments at the normal rate, not wanting to make a huge profit and cause any trouble. But very often, once you give your money to a professional money launderer, he will also take care of making a good profit. Sometimes the dirty money is greedy and sometimes it’s not.
So you’re saying the greediest landlords are not necessarily the criminal ones, right?
Private equity funds are probably the worst. Blackstone, Carlyle and smaller investment funds promise their investors an annual return of 10 to 15 percent and to make this money quickly – usually in less than 10 or even four years. To make this amount of money from real estate in Berlin so quickly you have to be really aggressive.
What strategies do they use to maximise profit? In Germany you can’t just raise rents the way you like, or evict tenants…
There are different strategies. Some like to buy cheap apartment blocks and social housing, let them get run-down, don’t invest in upkeep, and just make money from the rent. That’s one approach. Another popular approach in the past decade has been to buy an apartment building, renovate, add a lift or balcony, and then increase the rents to a level the tenants can’t afford. When the old tenants are gone, they bring in new people who pay three times as much.
Another popular approach in the past decade has been to buy an apartment building, renovate, add a lift or balcony, and then increase the rents to a level the tenants can’t afford. When the old tenants are gone, they bring in new people who pay three times as much.
Sometimes they’ll offer tenants €10,000 or more to leave and then rent out the same apartment for €15/sqm. You can find some of the Blackstone apartments in Kreuzberg – not even in the nicest streets – for rent at €18 and above! Others rent small rooms, furnished and serviced apartments for more than €40/sqm. Or they turn first-floor shops into homes for refugees, with the city paying comfortable rents. And last but not least there’s the strategy of splitting up buildings and selling the individual apartments for twice the price.
Do you think the Mietendeckel will mean anything to these investors?
For some it could spell real trouble. For example, Akelius owns more than 50,000 apartments around the world, nearly 14,000 here in Berlin. Akelius is specialised in renovating apartments and renting them out for €16/spm or more. Considering that one third of Akelius’s apartments are already modernised and charging these kinds of rents, they might have a big problem. Do you think the rent freeze is a good idea? I think it’s a very good idea. Many landlords don’t have any need or reason to increase rents. Most of them bought their apartments 10 to 20 years ago for €1000-2000/sqm, and so with a rent of €6/sqm, they can already make a very decent profit. If they charge €9/sqm or more they are making profits that are completely unreasonable considering the low level of risk: like eight to 10 percent on a very safe investment. Look at the property market: until 2012, Berlin property sold for €1000/sqm, now it’s more than €3000/sqm. Within six or seven years, anyone who owned real estate made a profit of 300 percent! My opinion is that no one should make this kind of profit. Germany is a very unequal country in a world that is extremely unequal. We need to regulate and redistribute this wealth.
So how do you suggest wealth should be redistributed?
It will have to be a package of different solutions. You have to make speculation less profitable, through regulating rents, and possibly a tax on transactions. You also need to work on making it harder for dirty money to invest in real estate, which would already make the demand a bit smaller. You can redistribute using a mix of a wealth tax and taxing gains also for private individuals or by expropriating at historical values, basically the expropriation model the Deutsche Wohnen & Co. Enteignen campaign is calling for: to buy back apartments from any company owning more than 3000 apartments in the city at 2012 prices.
How do you see the Berlin property market developing in the next 10 years?
That’s impossible to predict but it might look very different. At the moment we have a peak of demand for housing, because of ageing babyboomers, which means many single pensioners living in apartments that are far too big – and you can see that the average square meter per person is increasing.
The wealthy people in Germany – the few very wealthy families – are allergic to transparency for an obvious reason. Because the only way to sustain such an unequal system is by hiding it.
Meanwhile their children and many young people have been moving here looking for their own flats. Give it another five years and this peak will be over. Meanwhile all that construction being launched at the moment will have come to market.
So we might even end up with too many flats. Everyone says “We need to build more”. You’re saying don’t, we’ll end up with too many flats?!
I think the blind focus on building is completely misplaced. It would be great to have 100,000 or 200,000 more right now, because now we have excess demand. But in five years the situation might already be different. We’ll still need many more small and affordable apartments but that’s not really what is being built at the moment.
So who owns Berlin?
The Real Estate lobby likes to say that 50 percent of flats are owned by small people: nice old ladies or the baker who bought an apartment for his retirement. It’s true that 50 percent are privately owned, but many of them by the lords and dukes, the billionaires and multi-millionaires who own hundreds of them. The Pears brothers are perfect examples, but there’s also that local politician who owns Berlin real estate worth €100 million, or Mr. Berggruen the billionaire who used to own Karstadt and has plenty of apartments in Kreuzberg; or the Rocket Internet Samwer brothers… There are many more we don’t know about. It’s huge work to collect all this data and we’re already making progress. But we will only really know the full truth once we have an open land register, which I think will take at least another 10 years.
Why so long?
The wealthy people in Germany – the few very wealthy families – are allergic to transparency for an obvious reason. Because the only way to sustain such an unequal system is by hiding it. We are living in a democracy and if it comes down to taking away from 10,000 people to redistribute to 10 million, you will always find a majority for that. So that’s why they are fighting tooth and nail against anything that brings transparency because it will create the public pressure to change something. By doing so they allow the crooks and criminals to hide using the same tools.