The Transformation of Berlin From 'Poor but Sexy' to Rich and Unaffordable

Berlin was once an exception to the rule that cool cities have high property and rent prices. But those days are quickly ending. A new wave of private investors has led to skyrocketing prices, forcing low-earners to the city's periphery.
Von Wiebke Hollersen und Guido Mingels

The Danish man who is taking Berlin away from Berliners prefers to be barefoot in his all-white loft office in the city's Kreuzberg neighborhood, though he is wearing flip-flops today. "Hi, I'm Jørn," he says. His last name, Taekker, has become synonymous with real estate speculation in the German capital. But for Katrin Lompscher, a member of the far-left Left Party in Berlin's parliament, it's a "symbol of evil."

Valeria Fiori, a native of Milan, walks up the stairs to Taekker's fifth-floor office on Paul Lincke Ufer, a street running along a canal in Kreuzberg. There is no elevator. Fiori is a little out of breath by the time she reaches the office. She is 61 and arrived in Berlin yesterday from Milan. She already owns three apartments in Berlin, and now she is buying a fourth from Taekker. "I have more confidence in Germany than in Italy," she says, adding that she hasn't spent her entire life saving money just to let the euro crisis destroy her retirement.

A few steps away from the street, three of Taekker's tenants are sitting on their rooftop deck. They don't want to see their names in print, so we'll call them Torsten, Henning and Jakob. "We really have nothing to do with all that," says Torsten. Their building has become an investment property, like many others in the area. "We just live here," says Henning.

For a long time, they didn't know that a Danish investor who almost went bankrupt in the financial crisis had purchased their building. They also didn't know that this investor is now selling apartments in the building one by one, often to ordinary private buyers from southern Europe who, prompted by the euro crisis, are seeking to move their savings to a safer place -- and that their apartments could also be on the market.

An Intoxicated Real Estate Market

The way Torsten, Henning and Jakob see the situation, their building has become the scene of multiple global economic crises. The way others see it, what is happening in the German capital in 2012 is, quite simply, a real estate boom.

In this odd environment, two types of people are coming into conflict: On the one hand, there are the foreigners, or new Berliners, who are looking for something to buy. On the other, there are the locals, the old Berliners, who wonder how much longer they'll be able to stay. Those in the first group tend to look up as they walk the streets, checking out buildings and looking for good investments. Those in the second are just trying to get home.

Despite these differences, they are all anxious. The foreigners are anxious about their modest assets, which they hope to convert into valuable real estate before the euro goes bust. Meanwhile, native Berliners are worried about the city they call home. And this anxiety, which affects all of Germany and many other European countries, is being transformed into a euphoria of sorts in the Berlin real estate market.

Torsten, one of Taekker's tenants, says: "They are trying to take our city away from us."

Valeria Fiori, one of Taeker's customers, says: "Prices are still attractive in Berlin, and it's a good investment."

Taekker himself says: "I love Berlin. Things are looking up for Berlin."

The market is in a state of intoxication. Residential real estate prices in Berlin have risen by 32 percent since 2007, which is significantly more than in the rest of Germany. There were about 32,000 real estate transactions in Berlin in 2011 alone, a 20 percent increase over the previous year, and the trend is continuing. In that same period, sales increased by 28 percent, from €8.7 billion ($11.2 billion) to €11.1 billion.

According to the German rent index, average rents have gone up by 4 percent a year since 2009, which translates into higher profits for property owners. In Germany and elsewhere, people are scraping together their equity, taking out loans at historically low interest rates and investing in real estate, preferably in Berlin, where prices are still much lower than they are in Hamburg or Munich even with the current boom. Purchase inquiries have grown by 500 percent since 2007 on Immobilienscout24, a widely used real estate website in Germany.

A Winning Formula

The Graefe Kiez, one of the neighborhoods responsible for the poor-but-sexy image that has turned Berlin into a global brand, is just outside the door of the building housing Taekker's office. The Taekker logo, with the letters a and e combined, appears on many street corners and some construction sites.

While old Berliners pronounce the name like a curse, new Berliners see it as a promise. "Yet another building has fallen into Taekker's hands," says local tenant activist Martin Breger. The entire street has been "Taekker-ed," he adds. There is even a website called Taekkerwatch that bills itself as a "self-help site for renters affected by the privatization of apartments by the Taekker group of companies in Berlin." Potential buyers, however, use the site to stay abreast of properties Taekker is about to put on the market.

"Of course we're intruding into the neighborhood. I understand why people feel anxious," says Taekker, 56, whose company owns 3,500 residential units in the city. In his own estimation, he is one of the largest private investors in the Berlin market. In his trademark jeans and worn T-shirt, he looks no different from the Berliners whose apartments he is buying up. Taekker sees himself as a capitalist with good manners. "We're obviously here to make money," he says, "but we're doing it in an ethically correct way, within the framework of the law."

The company has expanded its Berlin portfolio since the middle of the first decade of the 2000s, generally focusing on buildings built in the late 19th and early 20th centuries in the Friedrichshain, Mitte, Prenzlauer Berg and Kreuzberg neighborhoods.

When asked what brought him to Germany, Taekker says: "I was looking for new investment options in Europe." He is sitting in a glass-enclosed conference room. Hundreds of white ring binders line the walls in the open-plan office, each with an address on the spine: Böckhstrasse 13, Dieffenbachstrasse 38, Maybachufer 47. The addresses, all in good neighborhoods, have a magical sound for new Berliners.

Taekker is a carpenter and building engineer by trade. In Berlin, he discovered what he had found in Copenhagen a decade ago: "A city with a left-led government and not much money, but with a fantastic atmosphere and many beautiful and inexpensive old buildings." After the turn of the millennium, when prices were high, Taekker sold more than 70 buildings in Copenhagen. Then he went looking for a new place to apply the same simple strategy: buy low and sell high when the boom arrives.

For a while, Taekker investigated properties in Nuuk, the capital of Greenland, but he felt that Berlin had more potential. "I couldn't understand why prices were so low," he says. "Someone must have overlooked something." When Taekker talks about his job, it sounds like a game of global Monopoly, one in which players aim to occupy the right properties, collect rent, hope for a lucky roll of the dice, sell and move on.

Residential Gold Rush

Marcel Magdeburg, a broker who works for Taekker, is driving to an appointment in a blue Smart. The miniature two-seater is the perfect car for him because his job often requires some creative parking. Magdeburg grew up in Potsdam, outside Berlin, has been working for Taekker for five years, and sells or rents residential real estate throughout the city. His days consist of a lot of driving, climbing stairs and showing empty rooms to prospective buyers or renters.

Magdeburg, speaking the language of brokers, says things like: "Demand in the sales segment has grown tremendously this year." But he occasionally reverts to ordinary conversational German and says things like: "My friends, it's just madness. Sometimes you see people tossing their cash right on the table. It's hard to believe, but it's true. Just think of the euro refugees from southern Europe. There are plenty of them these days."

He has just shown a few investment properties to a Berliner with tattoos on one of his biceps. The man buys small apartments and rents them out as vacation apartments, a practice that the Berlin Senate is trying to curb with new laws. Until recently, he was working as a fitness trainer. But now he's become a savvy investor who seems to know the legal ins and outs of owning real estate in Berlin.

The upturn in Berlin -- eagerly anticipated by many since German reunification but feared by others -- seems to have finally arrived. Foreign buyers, who now make up 30 percent of the market, are also increasingly fueling demand. Most of the foreigners now investing in Berlin are Italian, Spanish, Russian, British or French.

The Rough Rules of Supply and Demand

Valeria Fiori, the potential buyer from Milan, has brought along her husband, as she always does, as well as one of her grandchildren. "They're at the Lego Museum right now," she says. She is wearing a pink sweater, jeans and comfortable shoes, looking the part of a typical tourist on a sightseeing trip. She's in Berlin to buy another apartment, and this time she is looking at a two-room unit in Friedrichshain. It'll be her fourth investment in the Berlin market. Fiori is retired but says she doesn't receive a pension in Italy.

It's very quiet in Taekker's office, even though a dozen people are working at long tables doubling as desks. Fiori wants to reserve the Friedrichshain apartment, but she still has a few questions. When will the contract be ready? How quickly can the brokers find her a tenant? She doesn't like the fact that a lot of people have now discovered that there's money to be made with Berlin real estate. "Prices have really gone up. It's terrible," she says, sounding almost like a native Berliner.

Three years ago, Fiori was online when she discovered an apartment on Leipziger Strasse in the Mitte neighborhood. It was a 100-square-meter (1,076-square-foot) unit on the 20th floor, and she snapped it up at once. The first thing she did was to have eucalyptus parquet flooring installed in the high-rise unit. It has a view of the Mauerpark, a park in the Prenzlauer Berg district that the Berlin Wall once ran through, she says. Fiori owns another small apartment not far from the Mauerpark, as well as a unit near Weinberg Park, in Mitte. Her husband owns an apartment building in the Moabit neighborhood, as well as three other individual apartments.

The real estate is, in a sense, the Fiori family's "Berlin fund," and expansions are always a possibility. Would they consider buying in another German city? "Oh no," she says, "it's much too expensive."

When a new Berliner runs into an old Berliner in this odd period of fear and euphoria, there's usually a moment when the conversation takes a turn for the worse. Is €500 rent for a heated, 60-square-meter apartment with plank flooring and a balcony with a view of the Spree River a ridiculously small amount? Or is it highway robbery?

Soon the old Berliner loses his temper because the new Berliner starts trying to explain the world -- and capitalism. Apartments are a commodity, the new Berliner says, and when demand increases, so do prices.

Cities that are considered cool are expensive. Prices in New York are outrageous, while costs are sky-high in London. Complaints about outrageous rents are part of the narrative of a successful city. But Berlin used to be an exception.

Pushed Out

The narrative of Berlin's transformation from an isolated Cold War island surrounded by a communist sea to a city famous for its artists and nightlife has always revolved around low rents. The eastern part of Berlin used to be a socialist city, while the western part was a frontier city kept alive by subsidies. Old buildings were crumbling in Prenzlauer Berg when it was part of East Berlin and in Kreuzberg in West Berlin. Even after reunification, rents remained low.

Now they are going up. According to GSW Immobilien AG, a major real estate firm in Berlin, rents increased by almost 8 percent in 2011. Some 85 percent of Berliners rent rather than own their homes, and their concerns over rising rents are also a symptom of the boom. The current conflict between renters and owners poses a threat to a way of life in Berlin. It threatens people with few material but high cultural standards, standards they associate with their Kiez, slang for their local living environment. For many Berliners, their Kiez represents a smaller, more manageable part of the big city they call home.

"It just makes you wonder where we're supposed to go," says Torsten, who works in the media industry. Taekker's three tenants, sitting on their roof deck in Kreuzberg, want to remain anonymous because they're afraid of being thrown out. But whether their fears are justified isn't quite clear. Taekker has owned their building since 2006. Last year, residents received a letter informing them that their rental apartments were going to be "converted" or, in other words, sold.

Jakob, who works in the music business, moved to the area 15 years ago "because everything was so nice and non-trendy." Now he's surrounded by hipsters, tourists and stroller-pushing mothers. "We have no problem with trendiness," says Jakob, "as long it doesn't drive us out." Henning, the third member of the trio, works in IT. He pays about €200 for his 35-square-meter apartment -- and that's all he can afford, he says.

When asked what exactly they have against Taekker, the men grow quiet. The Berlin press has recently described harassment of tenants by landlords, but no one in the building has heard anything about such behavior. "Their behavior is generally pretty decent," they say. The tenants in the building were able to prevent Taekker from raising rents by threatening a lawsuit. Some tenants accepted settlements and voluntarily left their apartments when they were sold. So what's so bad about Taekker? "They don't do anything for the building," says Torsten. "All they've done is install bike racks."

Born of Crisis

Meanwhile, Taekker is raving about the quality of old buildings and the beauty of the herringbone parquet flooring and plaster walls in his buildings. He feels that his way of doing things is more sustainable than the methods of many German investors. "They buy a building, strip it from the inside out and turn it into luxury apartments," he says. "It's the most profitable approach." For his part, Taekker leaves the renovation up to the buyers.

Taekker admits that he has done well in Berlin. "We showed up at the right time and bought in the right neighborhoods," he says, with satisfaction in his voice. One could also say that Berlin was Taekker's salvation. In 2008, his Danish parent company got caught up in the global financial crisis and was on the brink of bankruptcy. The company had taken out loans from Danish banks, such as Roskilde Bank and FIH Erhvervsbank. Roskilde declared bankruptcy, and FIH was acquired by the Icelandic bank Kaupthing Bank, which eventually had to be nationalized.

Taekker, as a customer of FIH, was on a list of Kaupthing borrowers published by Wikileaks. His German assets were used as collateral in the restructuring of the company. It was only thanks to his properties in Berlin that the company managed to get back on its feet, says Taekker. The company is now making a profit again.

The three tenants sitting on the roof deck have heard about these deals. The rumors revolve around an unusual geopolitical chain of events that ends in a Berlin apartment building. An investor from the north loses money in the global credit crisis in 2008, and his company only becomes profitable once again when the demand for his Berlin properties increases.

In a roundabout way, the bursting of the real estate bubble in the United States led to a real estate boom in Berlin years later. German investors who would normally put their money in the stock market started buying real estate in Berlin. Countries in southern Europe began to falter in the wake of the European debt crisis, and their citizens, seeking a safer place for their money, also came to Berlin. For Torsten, Jakob and Henning, the story boils down to a cash-strapped investor from the north selling apartments to people from the south trying to escape the crisis.

Getting in the Game

"Do you like the area?" Fiori asks her son, who has also come to Berlin from Italy for a few days. They are standing on a restaurant-lined section of Krossener Strasse in Friedrichshain. Fiori wants to show her son her latest purchase.

It's the first property she has bought in Friedrichshain, which strikes her as a nice neighborhood for young people. The 53-square-meter apartment has a large eat-in kitchen and a full bath. She had actually intended to pay no more than €2,000 per square meter, but she and Taekker eventually agreed on a price of €109,000, or €2,056 per square meter. Fiori is the first buyer in the building. Taekker has just started putting the apartments on the market, and the tenants have reportedly taken the news fairly well.

When Fiori started investing in Berlin five years ago, the average price per square meter for an unfurnished apartment in an older building was just €1,540. By the beginning of last year, it had gone up to €1,715. Fiori, like most buyers in Berlin, prefers older buildings. In Milan, where she lives, a nice apartment "still goes for about €4,000" per square meter, she says -- twice as much as in Friedrichshain.

Fiori is waiting for the sales contract, but the notary public is very busy at the moment and it'll take a few more days, says a Taekker employee. "But you'll receive two bottles of wine from us at the closing, organic wine," he adds. Both Taekker and his company value organic products, says the employee. "Aha," says Fiori. Then she asks when the next apartment will be available for purchase in the building.

The boom has turned many in Berlin into real estate experts and entrepreneurs, and there are many who want to play the game of Berlinopoly. The number of private buyers has gone up by 30 percent in the last five years. Whereas the last boom, between 2004 and 2007, was fueled by a handful of large institutional investors seeking short-term profits, today's investors include thousands of private individuals seeking long-term security in the German capital. Instead of the corporate raiders that were dubbed "locusts," many of today's real estate investors could more aptly be called "ants."

They include people like Micol Singarella. When the 30-year-old from Aprilia, near Rome, moved to Berlin a few years ago, she would never have dreamed that the euro crisis would turn her into a real estate broker. She studied literature and philosophy, and she now lives in a shared apartment in Friedrichshain that she describes as a sort of leftist residential project.

Singarella sells real estate from her room in the apartment or from a table at a local pub, mostly to relatives and acquaintances from her hometown in Italy. Half of Aprilia has already bought "Appartamenti a Berlino," the words she has printed on her business card. She recently sold three units in an apartment building in the Wedding district to the parents of a friend from Aprilia, a childhood friend and a teacher from her old school. "Some of my clients believe that if the euro collapses, they'll eventually get their money back in deutsche marks," Singarella says.

Her services also include finding tenants for the apartments once they've been purchased. It's the easiest part of her job. "Everyone seems to be moving to this city at the moment," she says. According to demographers, Berlin is experiencing a "positive net migration," which amounted to almost 40,000 new residents in 2011. At the same time, more and more people want to live alone, and the fact that one in three Berliners lives in a single household contributes to the boom.

Singarella's roommates sometimes ask her questions about her job. Is it okay to sell condominiums in Berlin, they ask? Or is she partly responsible for rising rents? And is she partly responsible for people losing their apartments? Singarella tells them that she doesn't sell to shady real estate funds, but to people who are worried about their savings. But sometimes she does ask herself whether she and all the others who are flocking to the city, bringing their money and their worries, aren't destroying a utopia.

Migrating Dreams

It's the dream of a big city where things don't work quite the way they do in other big cities, a European capital where retirees, students and families with little money can afford to live in good neighborhoods, where people like Jakob, the Taekker tenant, can make a living in the music business. This unique aspect of the city has been referred to as the "Berlin mix." Urban sociologists predict that this mix will not survive, at least not in downtown Berlin. They suspect that people with lower incomes will be forced out to the periphery, as they are in other cities. Berlin is merely catching up to a wider development, say real estate experts.

A cosmopolitan city with low rents? It would be a nice dream. But Jørn Taekker has a different dream. His latest project is the construction of a small, sustainable city north of Aarhus, his hometown in Denmark, and his company has already designed the master plan. An estimated 15,000 people will start moving to the 220-hectare (544-acre) city in 2015. It will be heated with solar and geothermal energy, there will be rainwater collection systems and there will be car-sharing for everyone. Taekker is investing his German profits in the Danish city. As an era comes to an end in Berlin, a new era is beginning near Aarhus. The new city will be called "Nye," the Danish word for "new."

Translated from the German by Christopher Sultan