Investors suffer a total loss.
(Photo: JOYN, Manfred Sodia)
Zurich, Dusseldorf, Berlin Corestate had placed the bitter pill for investors at the very end of the “Executive Summary” of a confidential investor report: “Project King” would end up being a total loss for its investors. “The equity is completely lost,” said the real estate developer Corestate, shocking wealthy investors from Switzerland.
Behind the “Project King” is an apartment complex for short-term rentals in Düsseldorf, in which the investors participated as part of a so-called club deal. Apparently hardly anyone wanted to live there. With an occupancy rate of just 35 percent in February 2022, the income would not even cover the running costs, Corestate wrote.
The complex must therefore be sold in an emergency, according to a presentation available to the Handelsblatt. The proceeds are just enough to pay off the bank loan. The equity in the high single-digit millions, on the other hand, was completely lost.
According to Handelsblatt information, the “Joyn” apartments in Düsseldorf are not the only real estate projects of the Corestate group in trouble. The situation is similarly critical for apartment houses of the “Joyn” brand in Frankfurt, Munich and Hamburg. An insider says: “All projects have worms in them.”
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Overall, at least a mid double-digit million amount could be in the fire. Investors from Switzerland are therefore considering suing the Corestate Group in Germany or Luxembourg for damages. Corestate said on request: “Please understand that we do not comment on customer relationships or our customers.”
The threats of lawsuits are the second low blow for Corestate within a few days. In the middle of last week, the listed real estate developer had to postpone its annual financial statements. The reason for this is an audit of the affiliated bank subsidiary by the auditing company EY, which is taking longer than planned. Parallel to the postponed annual financial statements, Corestate replaced the previous CEO René Parmentier, “due to regulatory and supervisory reasons”, according to a company announcement.
The real estate project suffers from weak utilization.
(Photo: JOYN, MANFRED SODIA)
The share price, which was almost 42 euros in mid-2020, has not been a source of joy for investors for a long time. Most recently it was listed at just over ten euros. The disaster with the Joyn apartments points to serious operational problems at the real estate developer, which was once valued at 1.2 billion euros on the stock exchange. The market capitalization is currently around 350 million euros.
The club deals, which are now in trouble, work like this: Corestate acts as project developer and builder, develops a business plan and procures bank loans. Wealthy private investors provide the capital. You pay a fee based on the assets invested. In addition, Corestate takes care of a tax-saving structure for the club deals. The apartment houses are owned by special purpose companies in Luxembourg, in which the investors have participated.
Club deals like this used to be good business for both Corestate and investors, the insider says. The real estate group collected fees without any major risk of its own, and investors were often happy about the high returns on the capital employed.
Corestate is based in the Grand Duchy and, according to its own information, manages assets of around 27 billion euros.
(Photo: mauritius images)
But in the meantime Corestate has lost its sense for good projects. In any case, the construction costs for the Düsseldorf apartment complex got completely out of hand, as can be seen from the investor presentation. Instead of the planned six million, the construction cost over twelve million euros. The so-called secondary construction costs turned out to be 70 percent higher than originally planned. The costs for fees and interest were also almost twice as high as originally estimated.
Fund customers are also affected by losses
Corestate cites the corona pandemic as the main reason for investors. But the insider is convinced that this alone cannot explain the operational problems. He points to numerous changes in top management. Since the IPO in 2016 alone, Corestate has lost five CEOs, and there have been numerous other board changes.
In addition to the private investors of “Project King”, the bankruptcy also hit a second group of Corestate investors. The Corestate subsidiary Helvetic Financial Services AG (HFS) has granted the project a bridging loan of 3.7 million euros. This loan is also likely to fail, according to the investor presentation.
For its part, HFS is the operator of the Stratos funds, one of the largest fund groups specializing in exotic real estate bonds on the European market. Numerous German insurers and pension funds are also among their customers. The insider says he’s not sure that investors in the Stratos funds know that their money is responsible for the failures of the Corestate project developers. Corestate declined to comment.
More: Corestate Group postpones consolidated financial statements and replaces CEO.