The Battle For Berlin

At the peak of its popularity in the 1920s, the Wertheim department store on Leipziger Platz in central Berlin boasted of being the biggest in Europe, the place shoppers could find "everything under one roof," from French goat cheese to Wagner opera scores. One contemporary writer even hailed the emporium, with its statues and marble columns, as the Berlin Louvre. Like so much else in Berlin, Wertheim fell victim first to the Nazis and then to the postwar communist rulers of East Germany. Most of the Jewish Wertheim family members fled Germany or were killed at Auschwitz, and the property was nationalized after the war. Another retail chain, Hertie, long ago swallowed up the firm's remaining assets in West Germany. And today, the spot where Wertheim's flagship store once stood is an empty wasteland directly opposite the Bundesrat, the upper house of parliament.

But Wertheim hasn't disappeared into the history book — far from it. For more than a decade, the Leipziger Platz site — and a patchwork of other prime real estate in the heart of Berlin that belonged to Wertheim — has been the object of one of the biggest restitution battles in post-reunification Germany. Four groups are involved in a tangled legal fight over approximately 65,000 sq m of Berlin's best locations: the German government; German retailer KarstadtQuelle, which acquired Hertie in 1999 and claims to be the corporate successor to Wertheim; the Jewish Claims Conference, an official body that acts on behalf of Jewish Holocaust survivors and the heirs of victims; and some descendants of the Wertheim family led by Barbara Principe, who allege in U.S. federal court that they were swindled out of their inheritance in the 1950s.

More than 2 million claims for property restitution in eastern Germany were filed after the fall of the Berlin Wall, and hundreds of cases are still pending. But the Wertheim case is highly unusual for two reasons: it has become the subject of intense diplomatic exchanges between Germany and the U.S., and it has highlighted some peculiar German government business practices.

The litigation began within months of the reunification of Germany, when Hertie and the Jewish Claims Conference filed competing claims for a clutch of Wertheim properties. From the beginning, Hertie was at a disadvantage because Wertheim property was confiscated by the Soviet authorities immediately after World War II. According to the terms of Germany's reunification treaty, such property was not required to be returned to its former owner. In 2001, a Berlin court handed down the most authoritative ruling to date, awarding all the property to the Claims Conference, saying that it, rather than Karstadt, represented the former Wertheim owners. That decision prompted appeals by both Karstadt and the government; three rounds of settlement negotiations last fall broke down and have yet to resume.

[an error occurred while processing this directive]But documents obtained by TIME show that, even as courts were trying to sort out the ownership issues, German authorities made several deals with Karstadt or firms now owned by it, handing over at least €200 million in Wertheim property and cash. Among the transactions:

• Berlin authorities gave a triangle of land in central Berlin next to Potsdamer Platz to the retailer for free, on the understanding that it would build a corporate headquarters on it. The company promptly sold the land for about €150 million.
• The federal government allowed Karstadt to keep for almost a decade about €30 million in proceeds from the sale of one building on Rosenthaler Strasse, even though the Berlin State Property Office had already ruled that Karstadt didn't own the property. Karstadt says it has since paid back the money.
• TLG, a branch of the German restitution agency, is trying to develop Leipziger Platz and has set up a series of dummy corporations — all based at its own address, but apparently with no assets or funds — to do so. In the process, it has turned down at least one cash offer for the property that was substantially higher than its own valuation.
• The Finance Ministry paid a total of €16 million for rights to a strip of Wertheim land near Leipziger Platz that housed the postal service before the war. Oddly, the real estate was already officially registered as belonging to the government — so the Finance Ministry wrote a check for rights to property it already owned. The Ministry subsequently sold some of the property to a Berlin utility for twice the price per square meter that it had paid.