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No City Hates Its Landlords Like Berlin Does

(Bloomberg Businessweek) -- On the ground floor of a tan stucco building in the Schillerkiez neighborhood of Berlin sits an anarchist bar called Syndikat. Its windows are plastered with anti-Nazi and anti-gentrification stickers. Motörhead and German punk bands play on rotation, and a small draft beer costs less than €2.

Since 1985, Syndikat has served as a kind of cigarette-smoke-saturated living room for misfits, students, immigrants, and hard-up neighbors. In September 2018, however, an eviction notice from the bar’s landlord, Firman Properties S.a.r.l., appeared in the mail. That’s when Syndikat’s co-managers took on a surprisingly difficult challenge: finding out who owned their building.

“We’ve had a few owners, but the most recent had an address in Luxembourg,” says Christian Schulte, a 42-year-old sociologist with a septum piercing who’s helped run Syndikat for 13 years. “When we finally found the company’s number, no one ever picked up.”

Wondering exactly who he was dealing with, Schulte enlisted friends near the Luxembourg border to drive to the company’s headquarters. At the address listed on the bar’s lease they found an unremarkable commercial building housing a shoe store and a tanning salon—and an intriguing mailbox. On a sheet of paper posted nearby was a list of 76 companies associated with that mailbox, most of them apparently property management firms. Among them was Syndikat’s landlord.

Schulte and his colleagues scoured the internet and Berlin housing logs and discovered that the companies all shared the same three or four managers. They also found that roughly two dozen of the companies had been used to purchase more than 3,000 apartments throughout Berlin. Luckily for Syndikat, some of the companies were also active in Denmark, where, unlike in Germany and Luxembourg, owners must reveal their true identities. (In 2020, this became true for all European Union countries.)

That’s how, after about two weeks of fact-finding, Schulte’s team identified the actual owners of Firman Properties: Mark, David, and Trevor Pears, three reclusive brothers from London who own a majority of the privately held William Pears Group property company and, according to the Sunday Times Rich List, are worth about $4 billion. “They’re very secretive,” Schulte says. “One of them, you can’t even find photographs.” (Schulte isn’t his real name; he uses a pseudonym when talking to the press about real estate because he’s looking for a new apartment.)

Soon, journalists caught wind of the story. In May the Berlin newspaper Der Tagesspiegel, together with the German investigative group Correctiv, confirmed Syndikat’s reporting. Using information from the Panama Papers, they also revealed that the Pears brothers collected at least $53 million in Berlin rents and sales in 2017, while using standard real estate loopholes and shell companies in the British Virgin Islands, Cyprus, and Luxembourg and reported paying $197,000 in taxes on that income. Syndikat also found that the Pearses’ various Berlin companies had forced out a kindergarten and a pottery studio and had tried to remove a flower shop and a decades-old hardware store, presumably to charge higher rents. The Pearses didn’t respond to requests for comment for this story.

In Berlin, revelations about the Pearses’ real estate ventures stoked a growing rage against big landlords and property speculators. Since 2009 rents in the city have more than doubled. For people looking to buy rather than rent, it’s at least as bad—in 2017 alone, property values jumped 20.5%, the highest increase for any major city in the world, according to the real estate consulting firm Knight Frank. And while many factors are at play—most notably, a giant influx of new residents and a shortage of housing—Berliners tend to see greedy landlords as the problem.

Accordingly, Germany’s capital is taking extreme measures to stay (relatively) affordable and not go the way of San Francisco or London. Beginning in early 2020, Berlin’s left-leaning government will freeze rents for five years. Landlords will be required to show new tenants the most recent rental contracts to prove they aren’t jacking up prices. They’ll also have to follow new rent-cap rules, which for many landlords could mean lowering rents by as much as 40%. Those who don’t comply will be hit with fines as high as €500,000 ($553,000) for each violation.

Even more radically, tenant groups and thousands of activists are demanding that large corporate landlords be expelled from the city altogether, their property expropriated. The goal is to get the government to buy back roughly 250,000 properties—almost one-eighth of Berlin’s housing stock—and turn them into public housing. And while the move may sound far-fetched, it’s won support from anywhere from 29% to 54% of Berliners, according to various polls. Two of the city’s three ruling political parties have even endorsed a nonbinding public referendum on whether to force big landlords to sell their real estate to the government. (The biggest party, the Social Democratic Party, or SPD, is against the move, as is German Chancellor Angela Merkel’s Christian Democratic Union. They’ve signaled their intentions to challenge the new regulations in court.)

Berlin’s landlords, big and small, are reeling. The city’s publicly traded real estate companies, whose share prices fell for most of the summer after the government announced the planned freeze in June, complain that Berlin’s new regulations will scare off needed capital. Fewer companies will invest in modernizations to make buildings more appealing or energy-efficient, they say, and construction of new units may suffer, which would exacerbate Berlin’s shortages. “Almost 30 years after the fall of the Berlin Wall, it seems that some people want the former conditions back,” Michael Zahn, chief executive officer of Berlin’s largest publicly traded landlord, Deutsche Wohnen SE, said in an earnings call in November, referring to the former East Germany’s all-controlling government. “Tenants and landlords will face great uncertainty. That’s a poison pill for investment.” 

Until about 15 years ago, Berlin was unimaginably cheap. Although vibrant and beloved by artists and students for its do-it-yourself culture, throbbing techno scene, and world-class cultural institutions, the city had little industry, few jobs, and a glut of derelict apartments. That all began to change as Berlin became the premier startup hub in continental Europe. Then big companies moved in, including Amazon, Daimler, Sanofi, and Sony, as did foreign investors.

Today, Berlin is still affordable by international standards. A decent apartment in a good part of town costs about half as much as a comparable place in New York and far less for those lucky enough to possess an old lease. More than 80% of Berliners rent, in part because renting was, until recently, so cheap. Tenant regulations also distinctly favor renters, while federal tax laws offer no incentives to homeowners. Because commercial rents are also relatively inexpensive, the city has preserved a thriving landscape of independent bookstores, one-off coffee shops, storefront artist and design studios, and thousands of other small businesses.

In this city of tenants, a certain number of them socialists and ex-communists, animosity toward landlords finds frequent expression. In April 40,000 people filled the streets to protest what they call Mietenwahnsinn, or “rent insanity.” (It’s a play on the German term for mad cow disease, Rinderwahnsinn.) A few months later, the windows of one branch of high-end real estate broker Engel & Völkers AG were smashed. Graffiti a few blocks away read, “CAPITALISM IS THEFT” and “Gentrifick dich,” which basically means, “F--- yourselves, gentrifiers.” Two vans belonging to Germany’s biggest real estate company, Vonovia SE, were also bashed in, spray-painted, and set ablaze. “We took care to insure that no other cars caught fire,” wrote the anonymous perpetrators on an anarchist website.

Protest culture, squatter movements, and progressive tenant-rights groups are perhaps more entrenched in Berlin than elsewhere, but the city’s plight isn’t unique. In much of the U.S., home prices are rising at twice the rate of wages, and almost half of renters spend more than 30% of their income on rent, compared with 24% of renters in 1960. A renter working 40 hours a week and earning minimum wage can’t afford a two-bedroom apartment in any county across the U.S., according to the National Low Income Housing Coalition. Partly as a result, homelessness is soaring. In Oakland, the homeless population climbed 47% in the past two years. In New York City the number of homeless schoolchildren grew 70%, to 114,000, in the past decade.

Elsewhere, affordability numbers look similarly dire. Throughout Spain, average rents jumped 49% over the past five years, while average salaries rose only 4.3%. In Toronto, a 2019 report found that housing costs over the past decade grew four times faster than income.

A main cause of the problem is a shortage of housing as a growing number of people move to cities. According to the United Nations, 68% of the world’s population will live in urban areas by 2050, up from 55% today. (In Berlin, more than 40,000 newcomers arrive every year. In November more than 1,700 people reportedly showed up to view a single moderately priced apartment in a desirable neighborhood; some waited in line for 12 hours.) The expansion of Airbnb Inc. and other short-term rental platforms has only aggravated the shortage.

Berliners aren’t entirely wrong to focus their ire on big investors and landlords. For decades private equity firms and hedge funds have bought up swaths of affordable housing around the world. The trend accelerated after the 2008 financial crisis, when interest rates fell drastically. Investor money rarely goes into construction. With few exceptions, the strategy is to buy existing housing, renovate it, and raise rents. At the same time, many governments are investing far less in affordable housing, while developers tend to prefer building expensive apartments.

Last March, Leilani Farha, UN Special Rapporteur on Adequate Housing, singled out Blackstone Group, the private equity firm, for a practice she says has become common throughout the industry. “In many countries around the world,” she and a co-author wrote in a public letter to the firm, “Blackstone and its subsidiaries have been targeting and purchasing multi-family residences in neighbourhoods deemed to be ‘undervalued.’ In each case the pattern is similar. A building or several buildings are determined to be located in an undervalued area, which often means they house poor and low-income tenants. Blackstone purchases the building, undertakes repairs or refurbishment, and then increases the rents—often exorbitantly—driving existing tenants out, and replacing them with higher income tenants.”

There’s nothing new about this strategy, but Farha says Blackstone and other big investors and real estate firms are executing it on an unprecedented scale. Blackstone responded to the letter in a public statement, saying the UN complaint contained several inaccuracies and that Blackstone was in fact “helping to address the undersupply of housing by bringing capital, expertise and professional management to the residential housing sector.”

In Berlin the government is partially responsible for the dominance of big real estate firms. Before the reunification of Germany in 1990, East Berlin was communist and West Berlin—a tiny capitalist island within the Soviet bloc—lived off subsidies from the West German government. After the wall fell, the subsidies ran dry and Berlin racked up billions of dollars in debt, which the local government attempted to pay down by selling what it could to private companies. That included, from 1997 to 2004, the city’s water utility, half its electricity producers, and more than one-third of its public housing, or about 200,000 apartments. (Berlin has since remunicipalized its water and electricity.)

Global companies swooped in almost immediately. In a sale contested by the public at the time, U.S. private equity firm Cerberus Capital Management, backed by Goldman Sachs, bought Berlin’s public housing association, paying $448 million for 66,700 housing units—about $6,700 per unit. In 2013 Cerberus’s holdings became part of what is now Berlin’s biggest and perhaps most reviled publicly traded landlord, Deutsche Wohnen.

Today, Deutsche Wohnen is headquartered in a giant, meticulously renovated former Nazi office building in Berlin’s peripheral Wilmersdorf district. “From above, it’s shaped like an H,” says Philip Grosse, the company’s boyish 49-year-old chief financial officer, ruefully recounting the building’s origins. “But don’t let that give you the wrong impression about us.”

Deutsche Wohnen now owns more than 110,000 apartments in Berlin and counts the global investment management company BlackRock Inc. (not Blackstone) as its biggest investor. For years, newspapers have excoriated the company for increasing rents while repeatedly leaving hundreds of tenants without heat or hot water during Berlin’s icy winters. In 2017 the CEO, Michael Zahn, hired three bodyguards after receiving death threats. More recently, Deutsche Wohnen inspired the creation of the city’s biggest expropriation advocacy group, which calls itself Expropriate Deutsche Wohnen & Co.

Grosse buries his face in his hands when confronted with complaints about the company. “I’m not suggesting that everything runs 100% perfect in our organization. We could do better,” he says, adding that Deutsche Wohnen supplies space heaters when the heat goes out, automatically applies rent reductions until things are fixed, and consistently invests in the upkeep and improvement of properties. “I understand that the shortfalls in Berlin’s housing market are causing a lot of people headaches, but, if I look at the kind of product we are offering, it’s affordable to many people,” he says.

From 2012 to 2018, Deutsche Wohnen shareholders saw annual returns of 24.5%; and in 2018, the company’s net income was about $2 billion. Anticipation of the rent freeze, however, wiped roughly $5.3 billion, or 31%, off the company’s market value last summer. (It’s since recovered by more than half.) Deutsche Wohnen says it stands to lose $363 million in income over the next five years because of the freeze and possible rent reductions. In July the city also stopped Deutsche Wohnen from purchasing more than 670 apartments along Berlin’s Karl-Marx-Allee, the neoclassical, Stalin-style boulevard once used for communist marches in East Germany. Instead, Berlin spent about $1 billion to buy the residences. “It is my firm intention to buy apartments wherever possible so that Berlin regains more control over the housing market,” Berlin’s mayor, Michael Müller, said at the time.

“I’m a very rational guy, and what’s happening here is not rational,” says Grosse of the coming regulations and Berlin’s flourishing antipathy toward landlords. As soon as this month, rents will be capped at as little as $4.30 per square meter for older apartments with few amenities, and as much as $10.90 for newer apartments with better amenities. (The current average price in central Berlin is about $12 per square meter, according to a report by the newspaper Die Zeit; in Munich it’s $19.30.) Later in the year, tenants paying more than 120% of the government-determined prices will be allowed to take their landlords to court to seek a reduction. Apartments built after 2014 will be exempt, as will government-controlled housing (where rents are controlled anyway). Beginning in 2022, all landlords will be permitted to raise rents 1.3% annually, or in line with inflation. “But the law doesn’t take into account location or quality of building,” Grosse says. “You might have someone in a beautiful old building in a central location paying less than someone in a less-nice prefabricated building from the ’70s out in the suburbs.”

Signaling frustration, Deutsche Wohnen says it’s reviewing a planned $1.1 billion in new construction spending. Other landlords, including large companies and private investors, have also threatened to pull back. Berlin’s construction industry is worried. In December more than 240 construction vehicles, everything from small vans to crane trucks, converged on the Brandenburg Gate to protest the rent cap. Organizers of the demonstration, which also included landlords and landlord associations, warned that Berlin’s rent freeze will destroy jobs.

“Who will want to make long-term investments in a city that deals with investors in this way?” asks Michael Voigtländer, an economist with Germany’s IW Economic Institute. In a recent report the institute describes Berlin’s coming rent freeze as a catastrophe that “threatens to cause considerable damage to both the housing market and Berlin as a whole.”

International examples also give reason for pause. A 2019 Columbia Business School study found that expansion of rent controls and housing policies in New York City reduced housing inequality and led to increased well-being. But a 2017 study found that rent control in San Francisco had the unintended effect of advancing gentrification, as landlords took rental apartments off the market and sold them. In Portugal, decades of rent freezes and rent-control laws left the country with a plague of crumbling buildings that landlords couldn’t afford to maintain. After the regulations were lifted in 2012, the market began booming. In Sweden, which has perhaps the most strictly controlled market in the world, the waiting list for a regulated apartment in Stockholm is almost 675,000 deep. To bypass the wait, which can take as long as 20 years, people sublet apartments, likely paying more and forgoing the security of a government contract. Grosse, of Deutsche Wohnen, warns that black and gray markets will likely result from Berlin’s rent freeze, as they did in West Berlin, which also had strict rent regulations before the fall of the wall.

Berlin’s senator for urban development and housing, Katrin Lompscher, is credited as the “Mother of the Rent Freeze.” A member of Germany’s left-wing party Die Linke, Lompscher grew up in East Germany and, as a construction worker, laid heating pipes for buildings before studying architecture at Germany’s Bauhaus University. She dismisses international comparisons and the concerns of big landlords. “The politics of housing and urban planning are city-specific. It’s good to look around, to the right and the left, but then we have to decide what’s right for Berlin,” she says.

“The idea behind the rent freeze is to create breathing room so that Berlin can build more apartments,” Lompscher says. She is counting on a combination of municipal and private businesses to construct 20,000 apartments each year during the five-year rent freeze. That may be achievable, considering that 17,000 homes were built in Berlin in 2018.

“Some companies have threatened to withdraw from Berlin,” acknowledges Lompscher. “These threats shouldn’t be taken seriously. As a business you want to be at the heart of things, and Berlin is still an attractive city, despite the fact that we’re implanting a different strategy to improve the lives of those who live here.” At any rate, she adds, Deutsche Wohnen has never built a single apartment in the German capital.

“Recently I got to see New York through the eyes of my son, who’s a big music fan, and he was shocked to find out it’s hard to go out and hear heavy metal because the clubs have all been priced out,” says Lompscher. “Here in Berlin, you can go out and hear metal at five clubs every night. And we want to keep it that way.” 

“Scaring off investors like Deutsche Wohnen, that’s exactly what we want,” says one activist tenant who uses the alias Ingrid Hoffmann when speaking with the press. “We have no use for them; they only want to make a profit with our rent money.” Despite torrential rain, Hoffmann, 69, has just arrived by bike at a Berlin restaurant wearing head-to-toe rain gear. Feisty, with short hair and sparkling turquoise eyes, she looks excited to take on Berlin’s corporate landlords.

A former translator, Hoffmann joined Expropriate Deutsche Wohnen about two years ago after Deutsche Wohnen increased her rent by 10 percent, which she says forced her to come out of retirement and get a part-time job doing typist work for banks. She’s also dissatisfied with the company’s services. “Every year when it’s cold out, the heat stops working, and if you complain, nothing happens,” she says. “Elevators are also a problem. I’m on the 11th story, but the elevator often doesn’t work. Then I walk up.”

At first, Hoffmann didn’t like the term expropriation. “It gives people the chills, makes them think of a Communist sneaking up with a knife between his teeth,” she says. But she concluded it would stir up necessary publicity and get people talking.

According to city estimates, the government would have to pay from €29 billion to €36 billion for about 250,000 apartments. Expropriate Deutsche Wohnen, in a pitch that’s radical even by Berlin standards, counters that the government should reimburse the companies only for what they originally paid, plus a bit more to account for renovations, modernizations, and inflation. That price would be as little as €8 billion, and Hoffmann says the city could pay the landlords just 20% now and the rest over time, as rent money comes in. Asked if the money wouldn’t be better spent on building more housing, Hoffmann says, “Yes, they should do that, too—but they should have started building a long time ago.”

To be clear, Hoffmann’s group proposes the socialization of all properties belonging to landlords who currently own more than 3,000 apartments. “If a landlord has 7,000, we won’t take just 4,000,” Hoffmann says. Those with fewer than 3,000 would be safe. After remunicipalization, the properties would be run as a public nonprofit, similar to Germany’s public radio and TV.

Whether or not expropriation is realistic, a recent study, funded by Berlin’s Rosa Luxemburg Foundation, examines differences between the city’s public landlord, Gewobag, and its 12 biggest for-profit landlords. It shows that, on average, for-profit companies put less into upkeep than Gewobag (4% vs. 17%) and more into modernization (18% vs. 12%), a cost that can be passed along to tenants. They also buy more properties (60% vs. 44%) and build far fewer new apartments (1% vs. 27%). “As a result, rents for private companies climb about 5% per year, much faster than with Gewobag, where they grow with slightly more than 2%,” writes Christoph Trautvetter, co-author of the study and one of the journalists who helped Syndikat research the Pears brothers. In a follow-up study, Trautvetter suggests that publicly traded companies aren’t necessarily the worst problem for cities. The larger one is anonymous investors that use loopholes to extract wealth while paying very few taxes.

In late October roughly 100 Syndikat patrons and neighbors showed up for the bar’s eviction hearing. Syndikat’s regulars were dressed mostly in black, with plenty of facial piercings. There were also a few elderly neighbors, as well as colorful characters, including a middle-aged man with flowing auburn hair, painted-on fluorescent-orange eyebrows, and a dirty stuffed animal poking out of his jacket pocket.

Schulte looked nervous. “You know, the Pearses, they have a philanthropic foundation and, according to their website, they want to help people and promote community,” he said. “That’s exactly what Syndikat has always tried to do. When someone in the neighborhood needs to borrow a drill or a ladder, they come to us. When a grandmother from across the street can’t pay for her medicine, she comes and asks if we can help, and of course we do.” Syndikat’s bartenders, he said, pool their tips and communally decide what to spend them on.

But the neighborhood has changed. “It’s absolutely mind-bending,” said Schulte. “In 10 years it’s gone from one of the poorest corners of Berlin to a famous global hot spot.” Already, Firman Properties had converted some of the building’s other units into furnished short-term housing. “It’s mostly Americans who come,” Schulte said. “They call in noise complaints starting at 7 p.m.”

To everyone’s disappointment and no one’s surprise, the Pearses didn’t show up in person for the hearing. Instead, Firman Properties sent two lawyers. “My clients didn’t want to have to sit through all this,” one told the judge, gesturing with her head toward Syndikat’s motley supporters packed behind her in the courtroom and the halls beyond.

One month later, the verdict was in. Syndikat, the neighborhood bar, would soon lose its home in Berlin. —With Todd White and Benjamin Stupples Read more: How California Became America’s Housing Market Nightmare


To contact the authors of this story: Caroline Winter in Berlin at cwinter10@bloomberg.netAndrew Blackman in Berlin at

To contact the editor responsible for this story: Daniel Ferrara at

©2020 Bloomberg L.P.

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