Two key Signa divisions filing for insolvency in hit to real-estate empire

European property company Signa on Thursday said that two key divisions are filing for insolvency, a significant development in the unravelling of founder Rene Benko's real estate empire.

Signa Prime Selection filed for self-administrated restructuring in a Vienna court on Thursday, and Signa Development Selection will file on Friday, Signa said.

The announcements are the latest twist in the saga for Signa, the biggest casualty so far in Europe's real-estate crisis.

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"It is well known that external factors have had a negative impact on business development in the real estate sector in recent months," Signa said.

The holding company of Signa — a group of some 1,000 companies, with high-profile projects and department stores across Germany, Austria and Switzerland — filed for insolvency last month with around 5 billion euros ($5.56 billion) in debt.

Other divisions have followed suit, but Prime Selection is Signa's largest real estate division with 54 properties valued at 19.3 billion euros and debts of 4.5 billion euros, according to the AKV creditor protection association.

Holdings include the KaDeWe department store in Berlin.

Handelsblatt reported on Thursday that Prime was planning on selling most of its portfolio, paring holdings down to between 1 billion and 2 billion euros. Signa didn't immediately respond to a request for comment.

Signa Development, with new projects in the works in Vienna, Berlin, and Wolfsburg, Germany, has a balance sheet of 4.6 billion euros, according to Signa's website.

For years, the property sector in Germany and elsewhere in Europe boomed as interest rates were low and demand strong.

But a sharp rise in rates and costs has put an end tot he run, tipping developers into insolvency as bank financing dries up and deals freeze.