How Adler ended up the target of a seven-country raid

On a quiet back street sandwiched between Mayfair's Grosvenor and Berkeley Squares in London's West End, the door to 11 Mount Row bore signs of forced entry, its black paint pierced by a battering ram. Temporary padlocks had been installed to secure it.

Wednesday morning, the building had been targeted as part of a vast police operation spanning seven countries and almost two dozen addresses. The sweep focused on Adler Group SA, formerly one of Germany's largest landlords, and the man accused of pulling the strings behind it. At its height, Adler had a market capitalization of €3.4 billion ($3.7 billion) and a portfolio of almost 70,000 homes financed with more than €8 billion of debt. After a series of scandals, it is now worth just €74 million. Only months ago, creditors approved a final cash injection.

On the other side of the block, the occupants of 2 Carlos Place drew the blinds to shield themselves from the street. The building is the headquarters of real estate company Aggregate Holdings SA, a major Adler shareholder. Both it and the Mount Row property are owned by a company based in the British Virgin Islands whose sole declared beneficial owner is Josef Schrattbauer. Schrattbauer is the brother-in-law of Cevdet Caner, Aggregate's CEO and the man at the center of the day's dramatic events.  

Many question marks surround Caner, a self-assured 49-year-old Austrian who took the helm of Aggregate almost exactly a year ago, more than a decade after his own real estate empire collapsed during the global financial crisis. For his role overseeing Level One Group — which culminated in the second-largest real estate bankruptcy in German history — Caner was accused of fraud, beating the charges more than a decade later.

As Caner's family and friends gradually built up stakes in Adler, the former real estate mogul downplayed his involvement, insisting that he had no official role in the company nor any direct financial interest. Yet family ties came to the fore as the day's raids unfolded, with all of those targeted by the raids closely connected to the tycoon.

Among them are Schrattbauer and his sister Gerda, Caner's wife and a direct Adler shareholder as well as a beneficiary of the vehicle through which the family first invested in the property firm. Gerda owns a design business that is listed on the Carlos Place building's intercom as occupying the floor above Aggregate's offices. 

These names reflect how interwoven the many companies and associates behind the German landlord have been — a knot that authorities across Europe are now trying to untangle.

Signs of trouble

Adler has been under intense public scrutiny since October 2021, when short-seller Fraser Perring released a scathing report accusing the property giant of widespread fraud. Not long before, a whistleblower had written to Adler's lenders warning that Caner was secretly pulling the strings at the company. 

The property group responded by commissioning auditor KPMG to investigate the allegations. The ensuing 125-page report, which Adler characterized as a vindication of its business practices, cleared the company of systemic fraud but failed to disprove several key claims. Notably, it also identified accounting irregularities and roughly €12.6 million in consulting fees paid to Caner between 2018 and 2020. Perring's Viceroy Research had alleged that Caner and his family used Adler as a vehicle to build their own wealth at the expense of investors, often through deals involving close acquaintances.

Adler Group, which owns Adler Real Estate, confirmed the raids at its offices in Luxembourg and Berlin, adding that it is cooperating with authorities. Caner's premises in Monaco and London were also searched, said Ben Irle, a lawyer for the investor.

Caner has previously denied any direct involvement in Adler.

Chairman Stefan Kirsten, who joined Adler in February 2022, acknowledged that the report painted a detailed picture of the tycoon's influence over the company — Caner frequently invited senior-level employees for meetings on his yacht, and issued directives to the company's management — but maintained that this did not amount to fraud. "There was insubordinate influence exerted on our company, but no systematic enrichment of individuals," Kirsten said at the time.

Several board members resigned in the wake of the report, and KPMG later ended their relationship with Adler after declining to give an opinion on the company's accounts, citing the fact that Adler withheld thousands of emails during its investigation. 

As the company's share price buckled and the property market was upended by a series of rapid rate hikes, Adler's creditors began getting nervous. In early 2022, with full repayment looking increasingly unlikely, some began hiring lawyers.

Downfall

The property group's troubles deepened in May 2022, when it became public that prosecutors in Frankfurt were investigating Adler over the 2019 sale of a former glassmaking factory in Dusseldorf-Gerresheim to a firm owned by Schrattbauer, Caner's brother-in-law. The transaction, which had been flagged in the KPMG report, valued the Glasmacherviertel project at €365 million — approximately €233 million more than it was actually worth, according to regulators. Due to a lack of documentation about how that valuation was reached, KPMG said it was unable to refute "the allegation that the sales price for the project company was excessive." The deal was later reversed.

The Dusseldorf project's €365 million price tag attracted attention because it enabled the company to keep its loan-to-value ratio below the 60% threshold that was a condition of its bonds. The board of what was then Adler Real Estate had also made the sale of Gerresheim a condition before it would sign off on the purchase of Israel's ADO Group, a major shareholder in Berlin landlord ADO Properties. The sale enabled Caner to broker the deal with ADO that would go on to unlock the 2020 merger that would ultimately create the Adler Group.

At the time, the proposed three-way merger between Adler and rival ADO Properties and German developer Consus had alarmed some ADO shareholders, who worried that they were being burdened with a heavily indebted rival attached to low-quality properties and a risky development business. Adler's purchase of the ADO Group sidestepped that problem by enabling the German firm to install new directors at ADO Properties who then recommended the acquisition of Adler itself. As the acquiring party, the deal would not be put to a vote by minority shareholders of ADO Properties.

More than two years later, in November 2022, BaFin, Germany's financial regulator, released a statement asserting that Adler had inflated its balance sheet by €3.9 billion in 2019 by incorrectly consolidating ADO Properties before the two companies merged. Adler denied these allegations, characterizing Ado's valuation as "proper and correct" in light of multiple audits and certifications.

The combination of investor flight and regulatory pressures amounted to an extinction-level threat, made worse by a backdrop of soaring inflation, elevated interest rates and around €4 billion of bonds to repay. Fearing a fire-sale in the midst of a major real estate correction, bondholders agreed a final cash injection to prop up the landlord long enough for it to manage a more orderly sell-off of its remaining assets in the hope that this would maximize a recovery on the bonds. At the end of last year they drew up a complex €938 million lifeline.

Behind the scenes, Caner was negotiating the terms. With little clarity over how much the firm's land, properties and development sites were worth, Caner emerged as the one person "who knows the true value of the assets," said Marc Liebscher, a board member at SdK, an investor lobby group that represents some Adler shareholders. "You can't restructure Adler and try and take money out of the company without Caner's input."

A representative for Adler denied that Caner had any involvement in drawing up the deal.

New terms

These negotiations culminated in a bitter court fight earlier this year, as some of Adler's creditors claimed the terms on offer weren't fair to all bondholders. In March, an Adler bondholder filed suit in Frankfurt to block the company's efforts to restructure its debt. But before a verdict was reached a London High Court ruled in favor of the deal, allowing Adler to extend the maturities of bonds due next year and to temporarily suspend interest payments. That enabled the property group to avoid immediate insolvency, and for Caner, it meant that he could continue to act as CEO of Aggregate — with slightly less scrutiny.

Or so it seemed until Wednesday, when 175 police officers fanned out across Berlin and the German state of North Rhine-Westphalia, as well as in Austria, the Netherlands, Portugal, Monaco, Luxembourg and the U.K., searching for former board members and Adler affiliates suspected of false accounting, breach of trust and market manipulation. 

The targets of the investigation and the properties raided show how deeply enmeshed Caner is in the prosecutors' probe. In an instance of history repeating itself, the raids also took place almost exactly 14 years after another of Caner's Mayfair townhouses, a short walk from Aggregate's offices, was repossessed by lenders to his previous real estate company.

Hours after the sweep began, Oaktree Capital stepped in to seize one of Aggregate's prized projects, the QH Track development in Berlin, leaving the company's once-impressive cabinet of real estate trophies a little emptier. Adler's bonds fell too, as investors weighed the potential fallout for the once-vast real estate empire.

— With assistance from Chris Reiter and Karin Matussek