Mathias Düsterdick wants to counteract the concern that ambitious real estate projects in many large cities in Germany will remain in ruins for years. That is why the CEO of the insolvent Gerchgroup asked questions at a press conference on Wednesday. The project developer had filed for bankruptcy under his own responsibility last week. Gerch has major construction projects in cities such as Düsseldorf, Cologne, Frankfurt, Nuremberg or Ingolstadt – the question of how things will continue is an open question everywhere.
“With a bit of prudence on the part of everyone involved in the project, most of the projects, or maybe even all of them, can be completed well,” said Düsterdick in Düsseldorf. In the past few weeks, some project developers had filed for bankruptcy, including larger companies such as the Nuremberg Project Group or Development Partner and Centrum from Düsseldorf, but also the smaller Euroboden from Munich. Overall, there is a mood of crisis in the industry due to high construction costs and higher interest rates on more expensive financing. Large landlords such as Vonovia or the commercial real estate provider Aroundtown recently had to write down their portfolios.
Nobody wants to buy anymore
However, the project developers are more severely affected by the upheavals. They often develop large-scale projects, which they finance differently over the course of the construction period and sell over the years. The triggers for the Gerch crisis were also the upheavals on the real estate market triggered by high inflation and rising interest rates, said Düsterdick. “Nobody wanted to buy it anymore. The investment market is practically dead.” Now it is a question of speaking to those involved in the project and those who finance the construction projects in order to ensure liquidity for the coming months and years.
The company, founded in 2015, says it manages nine projects with a total volume of four billion euros. Gerch has specialized in the development of quarters that are used for living and offices. The four holding companies of the corporate group are currently affected by the insolvency, the project companies are not yet.
Projects at different stages of progress
At Gerch, the projects are in very different phases: some are just about building law, such as in Ingolstadt or Augsburg. In Frankfurt, the company wants to develop the old police headquarters. The demolition of the old building is still pending. Gerch bought the property four years ago for 212 million euros. On the former site of the mail order company Quelle in Nuremberg, “The Q” is being built in a listed building, which is scheduled to be completed in the coming year. Retail tenants such as Lidl, Müller, Rewe and the Sparkasse Nuremberg have already been established on the ground floor, and the city of Nuremberg has also rented the planned offices. There, too, construction continues – while in Cologne, in the immediate vicinity of the cathedral, everything has come to a standstill, especially in the Laurenz-Carré.
Here, the project developer had identified a buyer for two building plots, but the ailing business partner Corestate withdrew. This triggered a domino effect because, according to Düsterdick, a bill of more than 120 million euros was not paid. As a result, the auditors refused to certify the company for the balance sheet for 2022, and given the reluctance of investors, there were no sales in the project companies. This then led to Gerch being unable to pay either rent or the salaries of the around 50 employees in the holding company in August, so that the company had to pull the ripcord. “Ultimately, the projects didn’t go any further due to the lack of an investment market,” said Düsterdick.
Nevertheless, the company is optimistic that the project companies will not have to go bankrupt. A law firm has been commissioned to prepare an expert opinion by the end of October, after which the insolvency proceedings should be opened. For example, the construction time for the Laurenz-Carré in Cologne is two and a half years. If politicians and central banks had inflation under control by then, interest rates would fall and the investment markets could recover, hopes the Gerch CEO. “You can assume that the projects will then be for sale again. The financiers also have an interest in the money not being burned,” said Düsterdick. The housing shortage and the development of rents are long-term trends that would hold the prospect of more than cost-covering projects for investors.
However, it is still completely unclear how many of the ongoing projects Gerch will be able to continue to operate himself, which of them may have to be resold or which concessions are necessary from investors so that project companies do not also slide into insolvency. All this should now be clarified in discussions. Dusterdick does not expect large deductions. “Our projects are calculated seriously, even in difficult times,” says the Gerch CEO. A good 70 percent of the projects involve living space, the remaining 30 percent are offices, such as the Laurenz-Carré, which is purely an office district.
As shareholders, however, the founders could not inject capital themselves, it said on Wednesday. “We put pretty much all the capital we earned into the group. As shareholders, as two Gerch families, we can no longer do that,” said Düsterdick. Even the construction of the Laurenz-Carré was largely funded from equity. Gerch made the last project purchase at the end of last year in Nuremberg. The last time the company sold anything was before the outbreak of war in Ukraine.
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