While the tourists in front of the German Cathedral on the Gendarmenmarkt squint in the maisonne, opposite the Hilton there are four men in suits sitting in the air-conditioned Executive Lounge. One expert in crisis communication is a lawyer, the other two are part of the management staff of a group that largely grew unnoticed to become the largest owner of commercial real estate in Germany: Aroundtown Property Holdings SA
Only when it came out last week that the real estate giant is the main sponsor of the Berlin football club 1. FC Union, Aroundtown came into view. On the Internet there was criticism, fans reacted angrily, because a real estate company based in Luxembourg does not seem to fit the down-to-earth image of the club. Who is behind Aroundtown? The story is complicated. Weeks before, the gentlemen in the Hilton act tense. The conversation is about Cyprus, tax savings, transparency and the incredible growth of the company. In 2015, the portfolio of Aroundtown amounted to 2.4 billion euros. In 2018, it was more than 14 billion. An exponential curve. Hard to imagine what that means.
Who looks around in the golden light of the Hilton, gets an idea. Probably the largest 5-star hotel in Berlin, 601 rooms. It belongs to Aroundtown. The industry service Thomas Daily put the purchase price with 297 million euros. A recent research by Berliner Zeitung and Handelsblatt traces how even a giant like Aroundtown invests real estate through a network of offshore companies in Cyprus that makes the owners virtually unidentifiable to the public.
Aroundtown company network connects hundreds of companies
The conversation in the hotel is intended to signal openness, but it is like a secret mission. Nothing can be quoted. The men act very carefully. The shares of their group are listed on the stock exchange. Their value has soared rapidly. That should stay that way.
Questions should be sent later in writing. When the questionnaire is received, the group enters into a law firm. Several lawyers are hired. Unusually high pressure, even before a line has appeared.
Real estate in German cities are auspicious as an investment. It’s not just the appreciation that stimulates the imagination of globally active investors, but taxes are also easy to avoid – quite legal. Intricately nested corporate structures help blur ownership. In cities like Berlin, this is increasingly being perceived as a problem, resistance is growing. The fact that Aroundtown is intransparent, the group of itself. In fact, a listing requires extensive disclosure requirements. Aroundtown promotes transparency with the EPRA BPR Gold Award – awarded by the European Public Real Estate Association (EPRA), an association of real estate companies.
The corporate network of Aroundtown links hundreds of companies. Individual real estate is in GmbHs. Almost every one leads to Limiteds in Cyprus. These are limited liability companies that are similar to the German stock corporation. Three law firms emerge from behind: Haviaras & Philippou LLC (HHP) has one, Hadjidemetriou & Associates a second, most frequently a law firm headquartered in the capital Nicosia: KKPLaw. A partnership with good wires, founded in 1977. Here the verifiable traces are lost.
Aroundtown speaks of a “culture of listening and improving”
The law firms not only manage the companies, they also partly hold the shares as trustee, ie as deputy, as “nominee shareholders”. This means: If you look in the register of companies in Cyprus, you will not find the actual owner of the property, but a partner of the law firm. Aroundtown states that this action is “in accordance with applicable laws and accepted international practice”; it was “fully transparent to all relevant institutions and business partners such as financing banks, commercial banks, tax authorities”.
Then, in the letter follows a remarkable passage: The group is “pleased” to announce that in the future it will renounce “Nominee Shareholders” and replace them with the true shareholders. In view of hundreds of companies a very complex change – this as a result of a press request? Aroundtown speaks of a “culture of listening and improving”.
The answers to the journalists’ questionnaire include dozens of pages. It is indeed true that “the beneficial owner is not (…) visible to the public”. Nevertheless, “The use of nominee shareholders (…) is not aimed at hiding the beneficial owners.” The model with the lawyers acting as proxies is not infrequently, but, as the financial expert Christoph Trautvetter says especially with small companies. For large and listed corporations, the practice is “unusual”.
Israeli-born businessman Yakir Gabay founded Aroundtown in 2004
Trautvetter worked for several years at KPMG, an accounting firm. Today he is committed to the network tax justice. Berliner Zeitung and Handelsblatt have evaluated thousands of register extracts in order to be able to trace the corporate structures. Printed on paper, the network spreads over about four square meters. Even the proportions do not startle Trautvetter, complexity is often conditioned by the size or history of companies. The special thing about him is the role of lawyers in the network. Cyprus is a country from which “profits from the EU can easily flow away”. And investors can remain anonymous there, says Trautvetter. “The country is very closed.”
gallery:Shops in Cyprus
Koushos Korfiotis Papacharalambous LLC, or KKPLaw, specializes in economic and financial affairs. It occupies three floors of an office and apartment building with large balconies overlooking the old town.
The law firm employs 35 lawyers and notaries; Employees of KKPLaw are according to own data with several hundred Aroundtown companies as trustee active.
The law firm is one of the oldest and best known in Cyprus. Senior partner Kyriacos Koushos was already acted as Minister of Justice by the ruling conservative Disy party
The questions of journalists answer the lawyers in a few days. They say that all their services are lawful and consistent with standards in Cyprus.
Ultimately, the search leads to the coastal city of Larnaca. This address is said to register dozens of Limiteds from the Aroundtown and Grand CIty network.
On the ground, however, there is no indication of all these companies. On the bell sign is only the name Grand City.
Cyprus as a location is fundamentally a contentious choice. A tax haven, say one. Aroundtown sees it differently. Cyprus is a normal financial center. There are “no grounds for speculation” about the reasons why the island was chosen.
The connections there are historically conditioned, it goes on, because the island applies because of its location as a “gateway to Europe for Israeli investors”.
That’s why Yakir Gabay founded Aroundtown in 2004 in Cyprus. Gabay, an Israeli-born businessman whose assets Forbes estimates at $ 3.7 billion, is the largest single shareholder in Aroundtown, accounting for around 30 percent. Aroundtown states that no money is being invested in German real estate through Cyprus. The Group finances its deals on the stock market, via equities and bonds issued to institutional investors, in particular to Gabay’s Avisco Group or the fund company Blackrock.
In the committees of the group one finds the name Gerhard Cromme
Aroundtown was founded in Cyprus and moved to Luxembourg in 2017 – possibly to shed the bad reputation of the island. “For many investors, the holding structure in Cyprus is a red scarf,” said Andrew Wallis, vice-CEO of Aroundtown, then the real estate newspaper. A financial analyst, who knows the group and wants to remain anonymous, confirms that the location has quite disadvantages – especially if one wants to attract investment companies: Many insurance companies should not invest their money due to their statutes at companies based in Cyprus.
Anyone who looks at the committees of the Group will find a prominent name, one of the top managers in Germany: Gerhard Cromme, formerly a supervisory board member of Siemens, Axel Springer, Lufthansa, has been head of the advisory board at Aroundtown since 2018. A manager who made a name for himself with good and transparent corporate governance.
From him comes the sentence: “What you can not explain publicly with good reasons, you better not even do.”
He does not want to comment on Aroundtown. Questions are answered by the crisis PR strategist. Cromme agrees, shares with the statements of Aroundtown and have “nothing else to add”.
Another name stands out, although it is not prominent. Operationally responsible for compliance, ie for clean business management, is a man named Christian Hupfer. He checks compliance with rules and acts as an independent referee. Hupfer is also the managing director of dozens of aroundtown companies. Can such a clean control work?
Until the IPO in 2015, it was not known which buildings belonged to the company
One had “due to the experience, personality and integrity of Mr. Hupfer seen no reason so far”, which speaks against this dual role. Here, too, follows an announcement that makes startling: Since the company is trying to improve itself by “encouraging third parties,” they will now replace “Mr. Hupfer as managing director in these companies”. On the northern edge of Berlin, the network of many companies forms a hub.
Wittestrae 30 – a business park made of clinkered office buildings somewhere in Reinickendorf. According to the commercial register, around 300 GmbHs are to be found in house F alone; they have no company signs and no mailboxes. There is only one name above the entrance: Grand City Properties. Also a listed company, which is one of the giants of the market with more than 80,000 apartments.
Aroundtown has a 39 percent stake. Grand City makes high profits with run-down buildings in simple locations, buildings with “turnaround potential,” as real estate managers call it. The same law firms respond to inquiries to Aroundtown and Grand City Properties, and the answers are in some ways the same. Together, this complex commands an empire worth around 20 billion euros. “What they achieved is enormous,” says the financial analyst.
None of the industry insiders who spoke with Berliner Zeitung and Handelsblatt wants to be cited by name. On the one hand, the real estate throws off operating profits, says the analyst, ie rental income. On the other hand, Aroundtown benefits from the added value of the buildings.
With transparency, it’s such a thing at Aroundtown. Until its IPO in Frankfurt in 2015, the company even kept to itself which buildings belonged to it. One does not give out any lists, explains Wallis at that time in the real estate newspaper. Now there is a website that shows at least a large part of the portfolio.
Aroundtown does not have a bad reputation in the industry
Berlin includes office complexes, hotels, logistics parks and several shopping centers, the Clou in Reinickendorf, the Schillerpark-Center in Wedding or the Park Center in Treptow. The building with the reddish facade in the 90s design rises on a main street. Inside there is a real, some discounters, here and there shops are empty, at Lidia Moden is clearance sale. A couple of retirees are sitting in the beige-tiled foyer bent over their sundaes.
Who owns the center? The owner of a fashion boutique says, “I do not know,” then she continues to sort her blouses. Even the saleswoman, who is behind the counter in another store, has never heard the name Aroundtown. “We do not know the owners,” she says. Shrug. “That has changed again and again in the last few years.” To do the dealers in everyday life with the Verwaltungsfirma. “Of course, we would all wish for more to be done,” says the saleswoman. “Everything stagnates here.”
Although it must not be bad for the traders that the owner is an international investor, says a Berlin commercial real estate expert.
“There are investors who buy, where it is not quite top, but rather second row, where there are problems that they find solvable,” he says. Aroundtown does not have a bad reputation in the industry. However, the group is not known to invest much energy in the development of its properties. “As a listed company, Aroundtown naturally has permanent valuation gains,” he says.
Treptower Park Center was once the property of the people
This means that rising real estate prices increases the value of the portfolio. As a result, more investors buy stocks. That drives up the value of the company. Or, as the expert estimates: “They make money with the commodity real estate, without the property being in the foreground.” Aroundtown states that the goal is to maintain and develop real estate in the long term. Less than ten percent of the real estate would be for sale. That’s more than a billion for a portfolio of over 14 billion. The real estate market in Berlin is in transition. Instead of private landlords, major international investors are boosted.
This has serious consequences for the city. For many buildings, whether residential, hotel or commercial real estate, the tenants no longer know who is responsible. The anger over rapidly rising rents is growing. In fact, Grand City Properties is on the list of citizens’ initiative, which calls for the expropriation of real estate companies in Berlin. The Treptower Park Center is an example of how difficult it is to track business in the area. A look into the land register does not help. The last purchase contract dates back to 1995. Since then, there are only documents in the file that certify changes to the companies.
The property was once the property of the people. Now the owner’s name is the Shopping Center at Treptower Park GmbH. This belongs to 94 percent of a Cypriot company called Leosrin Limited and six percent of the also Cypriot Kressa Limited. The shares were therefore not completely transferred. That should not be a coincidence: corporations often handle their real estate transactions as so-called share deals. Not the real estate changes, but shares of companies change the owner.
Public hand loses power of organization
Up to a threshold of 95 percent does not apply to a cent of land transfer tax. A legal trick that costs the state of Berlin about 100 million euros per year in taxes and also undermines the rights of the districts. For the right of first refusal Berlin in case of share deals difficult use – because just no plot is sold. These developments are worrying for the Bundestag member of the Left and financial experts Fabio De Masi: “The more money in the market, the more it drives up the prices.
And if I have legislation that makes it possible to buy and sell real estate quickly and thus save taxes, then I am a magnet for this money. “In addition, the public sector loses power:” I can not influence what the owners do with the property. Because I do not know who the owner is. “In the case of the Treptower Park Center, the story goes on. The owners of Leosrin Limited are two companies. One is called Cleserve, a KKLaw Nominees. Both are structured identically. Two partners of KKP Law are registered as their owners.
Aroundtown writes that the structure of the Treptower Center is considered “simple and clear”. The Group also emphasizes that it would not create tax avoidance effects through the holding structure in Cyprus.
According to the commercial register, several hundred companies from the Aroundtown and Grand City network are registered at Wittestrae 30.
On the signs of the business park, however, only the two real estate companies emerge: Grand City and Aroundtown.
According to the commercial register, around 300 companies are to be found in house F alone. They have flowery names such as Emerald Dipcadi Property GmbH or Fallow Calla Property GmbH.
He pays annually 100 million euros in taxes and social security contributions. One admits, however, that around half of all transactions in Germany were made as a share deal. This is not a tax evasion, “but a common practice in the German real estate market.”
Money laundering law leaves big loopholes
A lawyer who advises large companies in tax matters sees the problem primarily in the German laws. They make it possible for foreign companies to pay little taxes. For them, for example, neither commercial nor speculative tax. Profits can be reduced. Taxable in Germany are the “operating units”, as the expert says, so the individual GmbHs. Only the statuses are in the focus of the tax authorities.
If the GmbHs are externally financed, for example through loans granted to them by the holding companies based abroad, the interest reduces the taxable income.
The tax burden therefore decreases accordingly. Actually, in Germany, the Transparency Register should make visible who the profiteers of nested company constructions are. But who in the transparency register randomly searches for the names of the many Aroundtown GmbHs, always finds the same words: “No registration of a beneficial owner.”
That’s not the fault of the company. Although the Money Laundering Act provides that every company must specify its beneficial owners. But the law leaves big loopholes. Anyone who acts through Cypriot holdings in Germany remains in the dark for the general public.
Aroundtown writes that as a stock corporation she does not have to provide any details in the register. Nevertheless, it is transparent, because the Group has “complete documentation” for “every German subsidiary”, which also includes the Cypriot holding structures. In addition, the contracts of the trustees with the Cypriot Bar Association are visible.
One of the oldest and best-known law firms in Cyprus
The problem is not so much that relevant information is not available, but rather that the tax authorities do not have the capacity to survey the network as far as Luxembourg and Cyprus, says the tax lawyer. “In Germany the treasury looks at the German capital company. She does not care about which Limited in Cyprus is behind it. “There are a total of about 300,000 limited registrations in Cyprus, which has about 860,000 inhabitants.
Anyone who wants to know what is behind the three law firms can look up in Nicosia. Koushos Korfiotis Papacharalambous LLC, or KKPLaw, specializes in economic and financial affairs. It occupies three floors in a bright office and apartment building with large balconies overlooking the old town.
According to Greek Cypriot lawyers, it is one of the oldest and best-known law firms in Cyprus. It employs 25 lawyers and notaries and advertises that they act as trustees. “Confidentiality is ensured through the use of substitutes,” reads the website. There are “no registration or reporting requirements”.
Research leads to the coastal city of Larnaca
The building is within walking distance of the South Cypriot Parliament. Senior partner Kyriacos Koushos was already acted as Minister of Justice by the ruling conservative Disy party. Koushos was also Vice Chairman of the Hellenic Bank Supervisory Board and Vice Mayor of the Strovolos Municipality of Nicosia.
The questions from Berliner Zeitung and Handelsblatt will answer the lawyers in a few days. They report that she is representing “several hundred” companies from Aroundtown and Grand City trustees. All their services are lawful and consistent with standards in Cyprus. The law firm HPH comments similarly
The third law firm, Hadgidemetriou and Associates, remains a question mark. It can not be located in Germany, there does not seem to be a website. Even at the address where she is supposed to be sitting – it’s the same as KKPlaw’s – nothing points to her. She is not known to well-connected lawyers from Nicosia. Ultimately, the search continues in the coastal city of Larnaca. Dozens of limited companies are registered at one and the same address: Scanner Avenue Tower. But nobody can do anything about that name in Larnaka.
Who drives to the address, 54B Artemidos Avenue corner Nikou Demetriou, will find a three-story building with bluish shimmering windows on a dusty arterial road from Larnaca. There are no traces of all the limiteds, there are almost no names on the bell, several floors seem to be empty. On the second floor a well-known name is noted: Grand City.
collaboration:Stephan Thiel and Frank Nordhausen