This is the latest in a continuing series on Radovan Vítek and his real estate company, CPI Property Group.

CPI Property Group answers to one man. He controls the board, and the managers. He controls the numbers CPI publishes: the building values, the occupancy figures, the debt ratios.

Radovan Vitek owns 87 percent of CPI.

When CPI announced that an aging office building in Berlin was worth €199 million, the statement appeared to carry the authority of corporate accounting. The reality is simpler: Vitek was declaring the value of his own assets.

The Short-Seller

Carson Block

Carson Block is an American short-seller. His firm, Muddy Waters Research, hunts for companies it believes are lying about their value, bets against their stock, and publishes the evidence —bets against their stock, and publishes the evidence — a strategy that made Block famous after he exposed Sino-Forest in 2011.

Block has been right enough times to be taken seriously. On January 22, 2024, Block published a report on CPI. He asked whether the buildings were worth what Vítek claimed.

He began with a 500,000 square foot office building in Berlin. In June 2018, CPI told investors that Reuchlinstraße 10-11 was worth €103 million. Four years later, CPI claimed it was worth €199 million — nearly double.

Above: Brick office building at Reuchlinstraße 10-11 in Rest-West, shown for CPI PG’s 1H 2023 Interim Report. The photo appears to be re-touched.

Below: Actual facade photos of Reuchlstraße 10-11:

Below: A bar chart showing Reuchlstraße’s valuation doubling over 3.5 years and bullets: 2018 PP value €103 million, YE 2022 €199 million (+93.2%), note that building changes apparently nothing.

The building had not been redeveloped. Yet, on the company’s books, it had increased by €100 million. Block sent people to inspect the building. There were broken windows and graffiti. Entire floors were empty. Parts of the building appeared derelict.

Vítek’s company told its bondholders that the building had nearly doubled in value. Block found a run-down property in a market that had not doubled.

He estimated the value at about €112 million. If his analysis was correct, CPI had overstated the building’s value by €87 million.

Why the Number Matters

A company borrows against the value of its buildings. Bondholders loan money because they believe the real estate is worth more than the debt. Bondholders who fund Vitek’s company were lending against the strength of the company’s real estate holdings – some 200 properties.

If CPI exaggerated the numbers, then the security of the loans was weaker than investors had been led to believe. If a company collapses, the buildings are typically sold.

Bondholders are repaid only if the buildings are worth more than the debt.

CPI said it owned €20 billion in real estate based on its own evaluations and owed €13 billion in debt.

That makes the debt-to-value ratio about 65 percent.

The accuracy of that ratio depends entirely upon the truth of the reported property values themselves.

If the real value of Vitek’s real estate holdings is €17 billion rather than €20 billion, the debt-to-value ratio is 76 percent.

At that ratio, credit-rating agencies would be concerned about whether the debt is secure.

The Empty Floors

Block examined another indicator of inflated values: vacancy.

A building’s value depends heavily on rental income, so inflated occupancy figures can inflate valuations.

Bondholders rarely inspect buildings themselves. They rely on ratings agencies, which rely heavily on company disclosures.

Block examined occupancy rates by looking at the rental market. CPI reported 6 percent vacancy in its key Prague offices. The realtors at Colliers and CBRE were advertising 14.3 percent of his space. The discrepancy suggested CPI understated vacancy.

Above and below: Infographic map of Prague and Warsaw office properties with photos and vacancy details around a central map

Warsaw was the same. CPI reported a 7 percent vacancy. The listings from JLL, Cushman & Wakefield, and Savills showed 14. At one building, Park Postępu, the vacancy rate was 33.6 percent, based on advertised listings. At the Warsaw Financial Center, 25.9 percent. At Atrium Plaza, 25 percent. Vítek’s company had told bondholders these were among its most occupied buildings.

The Empty Fields

Then Block came to Bubny — 201,000 square meters of empty industrial land in Prague’s Holešovice district. CPI valued it at €276.9 million — €1,378 a square meter — on an appraisal by Jones Lang LaSalle. The appraisal used six comparison properties that were never identified. Rather than rely on CPI’s appraisal, Block assembled a database of comparable land sales.

He examined 70 nearby properties using Prague’s official Building Land Price Map, a municipal database built from actual transactions.

The average value came to roughly €690 per square meter — half of CPI’s valuation of its land. If Block’s analysis was correct, Bubny had been overstated by €138 million.

An inflation approaching 100 percent. Polygon BC and MQM Czech were parcels of land in Prague.

Vítek sold them to himself and later had CPI buy them back. The deal paid him €30.9 million for undeveloped fields. CPI reported the land had risen in value by €100 million. Nothing had been built there.

When Vítek sold the land in 2014, it was valued against sales of comparable land. When he had CPI buy it back in 2017, the method of valuing the land changed to “the prospect of earning permits.” The new value came from what the land might someday become if permits were obtained to build there. The land was no longer valued for what it was.

The fields were worth what dreamers imagined they might someday become after approvals, permits, planning decisions, and future construction. CPI increased its stated value of Polygon BC by €53 million in 2021 — the year before construction started on the first of six planned buildings. Block’s investigators walked the site: One building was under construction. One derelict structure had not been demolished. The rest was vacant land. Yet CPI was already valuing the project as though construction had been completed.

What Vítek Is Really Worth

Because Vítek’s fortune is tied so closely to CPI’s reported worth, his personal wealth could also be dramatically overstated. It raises the possibility that a substantial portion of CPI’s reported value does not exist except on paper. CPI says its buildings are worth €20 billion. It owes €13 billion. The difference — €7 billion — is what the company is actually worth once the debts are paid, and almost all of it belongs to Vítek. That €7 billion is his reputed fortune. If Block is right, and the buildings are inflated across the whole portfolio the way they were inflated at Reuchlinstraße and Bubny, then the €20 billion is a fiction. The buildings may be worth little more than the €13 billion CPI owes. If Vitek sold everything, and paid the debts, there may be nothing left. If nothing remains after the debts are paid, Vítek is worth nothing.

Not a billionaire. Just a man who borrowed billions of euros by telling the world his buildings were worth more than they were.

Ongoing Series

Earlier stories:.

The central question running through this series is whose money was at risk.

CPI borrowed billions from pension funds, insurers, and ordinary savers — including Americans whose retirement money flowed into the company through bonds sold by major banks.

UBS and Deutsche Bank, both with substantial American operations, were notified of a court order freezing roughly half a billion dollars of Vítek’s assets and did not act on it.

American authorities possess investigative powers European regulators have appeared unwilling to use. The question is whether state Attorneys General and U.S. federal officials will examine the possibility that a multibillion-dollar fraud affecting banks and pension funds reached into American financial markets with apparent impunity.