The Austrian Federal Railways (ÖBB) and the Post AG could have generated higher proceeds in real estate deals by means of public searches for interested parties
The Post AG and above all the ÖBB-Immobilien GmbH could have generated significantly higher prices in the sales of their real estate – had they ensured a competitive, transparent, non-discriminatory and accessible bidding procedure for the majority of their real estate sales. This is the conclusion drawn by the Austrian Court of Audit (ACA) in its report on "Compliance – Corruption Prevention in Real Estate Transactions: ÖBB-Immobilienmanagement GmbH and Österreichische Post AG" published today. The auditors critically note that in the case of sales with a public search for interested parties, as was the case for the Vienna Main Station (Hauptbahnhof Wien), the course of the sales procedure was not sufficiently well defined in advance. Due to direct sales – for example of the sites of the North Station (Nordbahnhof) in Vienna –, the ÖBB-Immobilien GmbH missed out on better proceeds. The audited period spanned the years from 2017 through 2020.
From 2017 to 2020, the ÖBB-Immobilien GmbH sold 540 properties for EUR 355.05 million and the Post AG sold 46 properties for EUR 52.19 million. While the ÖBB-Immobilien GmbH’s standard procedure for sales does provide for a public search for interested parties, the company did not always comply with this procedural requirement. For example, there was no internal clearance for cases where interested parties were not searched for publicly. The Post AG’s procedure did not provide for a public search for interested parties.
Significant revenue potential remained unrealized
The ACA’s analysis of the generated proceeds shows considerable differences between direct sales and sales that were preceded by public searches for interested parties. This was in particular true for the ÖBB-Immobilien GmbH, where the additional proceeds amounted to an average of 64 per cent above the appraisal value after public searches for interested parties, but only to an average of 2.51 per cent in the case of direct sales. At the ÖBB-Immobilien GmbH, another trend emerged: more than one interested party or more than one round of bidding led to higher prices.
The ACA analysed 309 sales at the ÖBB-Immobilien GmbH and 21 sales at the Post AG as to how much the purchase price exceeded the appraisal value. The ACA critically notes: about half of the 309 sales at the ÖBB-Immobilien GmbH and about one quarter of the 21 sales at the Post AG were made directly. In doing so, the two infrastructure companies missed out on significant revenue potential. The market value appraisals fell considerably short of the potential that could have been realized on the market, as evidenced by the prices generated when interested parties were searched for publicly.
The ACA examined 34 sales of the ÖBB-Immobilien GmbH and three sales of the Post AG in more detail using risk-oriented criteria.
ÖBB-Immobilien GmbH failed to capitalize on competition
By selling eight building plots at the Vienna Main Station, the ÖBB-Immobilien GmbH generated a total of EUR 65.55 million. However, it did not sufficiently specify the course of the sales procedure in advance and, among other things, left bidders in the dark as to how many rounds were planned in the public sales procedure. Hence, the ÖBB-Immobilien GmbH did not give them sufficient opportunity to place the highest bid. The offers of up to eleven bidders were in part placed closely together. The ACA concludes that higher prices would have been achievable. It recommends that the course of the bidding procedure be clearly defined in advance and communicated in a transparent manner.
When selling the “Landgut”, a property in close proximity to the Vienna Main Station, the ÖBB-Immobilien GmbH did not publicly search for interested parties and sold it directly. While the sales price of EUR 15 million matched the two appraisals obtained, the chance of generating proceeds that would have been possible under competitive conditions was missed due to the direct sale. This was confirmed when the estimated minimum purchase prices were tripled at the occasion of a public sale of nearby properties.
The ACA also criticized the sale of the sites of the North Station. The ÖBB-Immobilien GmbH sold them directly to a bidding consortium for EUR 162.70 million without a prior public search for interested parties. Apart from the missed opportunity to generate a higher price, this approach also contradicted the procedural requirements of the ÖBB-Immobilien GmbH, which stipulate a public search for interested parties as the standard procedure.
Post AG offered luxury apartments at fixed prices
Similarly, the Post AG did not make sure to attain the highest possible price in the sale of luxury apartments. The backstory: in 2014, the Post AG founded a project development company in order to turn its historical real estate portfolio in the Neutorgasse in Vienna into apartments in the premium sector. The overall purchase price for a total of 25 apartments amounted to EUR 43.74 million. The Post AG sold the apartments at fixed prices. However, there would have been room for higher prices, as evidenced by an apartment that was sold at a higher price than the fixed catalogue price.
With regard to the Neutorgasse project, the ACA also critically notes that the Post AG did not have any information about the purchasing companies’ economic owners. In terms of business partner compliance, this is also essential for complying with money laundering provisions in the real estate sector. One apartment with a sales value of around EUR 4 million was sold to a company that appears in the Offshore Leaks Database, a database of the International Consortium of Investigative Journalists (ICIJ) on companies in so-called tax havens.
Shortcomings in the implementation of compliance rules and regulations
Both the ÖBB-Immobilien GmbH and the Post AG had essential elements of a compliance management system – which comprises corruption prevention measures – in place and regulated the procedures of real estate sales in process descriptions. The ACA observes a generally positive compliance culture in both companies. However, shortcomings were revealed in the implementation of real estate transactions. At any rate, risk-based criteria should be used in real estate transactions to define cases in which the compliance unit should be involved.
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Report: Compliance – Corruption Prevention in Real Estate Transactions: ÖBB-Immobilienmanagement GmbH and Österreichische Post AG (in German)
The ACA audited both compliance and corruption prevention in real estate transactions of the ÖBB-Immobilienmanagement Gesellschaft mbH and the Österreichische Post Aktiengesellschaft. The audit aimed at assessing the measures taken to prevent corruption as part of the general conceptual compliance management system and to assess the implementation of preventive measures. As regards the sales, it audited both the preparation of the sales as well as the subsequent sales process. The audited period spanned the years from 2017 through 2020 and, where relevant to the audit, also earlier and more recent matters.