(Bloomberg) -- Cevdet Caner, the man at the center of Germany’s biggest real estate insolvency in 15 years, is fighting eviction from his 20 million-pound ($31 million) London townhouse, complete with basement swimming pool.
His group of investment companies called Level One owes 1.5 billion euros ($2 billion) to creditors led by Credit Suisse Group AG, according to estimates by the German administrator. The two main holding companies defaulted and were placed under court administration in August, U.K. filings show, after the group bought 27,000 units of communist-era public housing in the former East Germany over three years, almost entirely with debt.
The battles with creditors are the legacy of the boom years, when banks expanded lending to real estate investors -- even those with limited experience like Caner. Lenders blame him for mismanagement and say about 50 million euros were channeled out of the Level One businesses while they failed to pay utility and tax bills, according to six people who have seen an audit of Level One’s finances. Caner, 35, said he faults the banks for a change of heart after pledging to loan him the money.
“Level One epitomizes all that went wrong in the real estate bubble,” said Christian Koehler-Ma, an administrator of more than 50 Level One companies in Germany. “On one side you have Caner -- a good salesman, charming and intelligent -- who was looking to make money.”
On the other side were the banks, which resold the loans to investors “so they didn’t think about what they were doing as thoroughly as they should have,” he said.
Hedge Fund District
Borrower defaults such as Level One’s and falling property values led banks, insurers and government-sponsored enterprises to write down the value of loans or mortgage investments by $391 billion since September 2007. That’s 27 percent of the total losses in the global financial crisis, data compiled by Bloomberg show.
Caner’s six-story townhouse in London’s Mayfair district, the location of choice for hedge funds, is one front in the war between him and banks that is being fought in courts in Luxembourg, Berlin and Jersey, the Channel Island off the coast of France. He said he spent about 5 million pounds of his own money to buy and renovate the century-old, six-bedroom house in a neighborhood where owners include the billionaire brothers David and Simon Reuben and property investor Simon Halabi.
The property has 11,500 square feet of space if the carriage house at the rear of the garden is included. Caner got planning consent in December to demolish and rebuild this separate building as a garage with a four-bedroom apartment upstairs and a sauna, gymnasium and solarium in the basement.
Mayfair Townhouse
Caner acquired the Mayfair property for 16 million pounds in July 2007, Land Registry records show. In September 2008, the U.K. administrator of Level One Residential (Jersey) Ltd. -- Zolfo Cooper LLP, a former unit of Kroll Inc. -- demanded repayment of about 1.26 million pounds used to purchase the house, according to a March 4 report to creditors from Zolfo Cooper obtained by Bloomberg News.
The company that acquired the property, registered in St. Helier, Jersey, was put in liquidation, a court filing published Jan. 28 shows. The house was valued at 20 million pounds when the real estate brokerage arm of New York-based auction house Sotheby’s tried to find buyers in December and then withdrew it pending a court repossession order, according to the receiver, Jon Gershinson, a partner at Allsop LLP in London.
Caner’s Mayfair townhouse illustrates the lifestyle he enjoyed as money flowed from Level One into Special Opportunity Holdings Ltd., a company owned by two of his private trusts, said four people with knowledge of Level One’s insolvency who declined to be identified because the information is confidential. Katharina Gebsattel, a Frankfurt-based spokeswoman for Credit Suisse, declined to comment.
‘Stupid War’
“It’s a stupid war to try and kill me business-wise and reputation-wise,” Caner said in the wood-paneled boardroom at the townhouse, which he uses as his London office. “I don’t want to lose my investment in this property.”
No company funds were misused, Caner said, citing the money and assets he injected to satisfy lenders and avert his group’s insolvency. The 50 million euros of fees charged to Level One helped pay for his 50-employee asset management team, he said, and the rest was reinvested in the business. It was a typical private-equity fee structure, according to Caner.
“There was no wrongdoing on my side,” he said.
Caner, an Austrian who is the youngest of seven children born to Turkish immigrants, said he began property investing in 2003 after reading that rental incomes easily covered the borrowing costs for buying buildings.
Ran Call Center
Previously he ran CLC AG, a call-center operator he started while at business school in his hometown of Linz, where for two years he was president of the Young Socialists. He gradually sold his CLC stake until the board ousted him in 2002 because of a disagreement over expansion plans, he said. Two years later, CLC filed for insolvency, and creditors got just 1.36 cents for each euro owed, Vienna court documents show.
From late 2004 through 2007, Level One spent 1.85 billion euros buying apartments -- mostly from former East German municipalities -- and 400 commercial properties in Germany, Caner said.
It was a strategy already pursued by larger private-equity firms, including Terra Firma Capital Partners Ltd. in London, and Blackstone Group LP and Fortress Investment Group LLC, both based in New York.
Many investors got stuck after betting mistakenly that homeownership in Germany would rise as it did in the U.K. and the Netherlands when affordable housing was sold by municipalities, said Philip Cropper, London-based managing director of Real Estate Finance at CB Richard Ellis Group Inc.
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