Deka to launch €800 mln German retail fund

German fund manager Deka Immobilien is to launch a new retail fund, Domus Einzelhandel Deutschland, targeting German high street assets, with the aim of growing it to an €800 mln vehicle, Thomas Schmengler, head of sales and acquisitions at Deka Immobilien in Frankfurt, told PropertyEU this week.

‘Domus is a spezialfond that will initially focus on high street retail across Germany but could eventually also invest in small shopping centres,’ he said.

The fund will be launched later this year, although the launch date has yet to be disclosed. Investors in the fund are expected to include German Sparkassen, or savings banks, Schmengler said. The target return has not been disclosed.

However, the fund has already made its first purchase. Earlier this week (6 July), Deka acquired a portfolio of 51 retail properties across 37 German cities from Dutch investor D&R Investments for €700 mln in an off-market deal. More than 80% of the properties – or 44 assets - will be transferred into Domus, Schmengler said. The inner-city properties comprise around 137,000 m2 of lettable space in cities such as Cologne and Hannover and are almost fully-let.

‘It’s very unusual to find a portfolio of this magnitude,’ Schmengler said. ‘We have a very strict risk-adverse strategy and what we liked about this portfolio was that the high street properties are all fairly similar. In addition, they are in “super core” locations, which we really like.’

International investors have poured into Germany’s retail sector this year looking for reliable core investment opportunities. Subsequently, retail deals almost doubled in the first half of the year, rocketing to €9.28 bn, up from just €4.82 bn in the same period last year, according to JLL. However, the numbers are slightly skewed by the biggest sale of the year so far. In June, Hudson’s Bay Co., the owner of Saks Fifth Avenue in New York, agreed to buy 43 Galeria Kaufhof department stores from Germany’s Metro Group for €2.42 bn.

Deka’s retail deal is not included in the figure as it took place at the beginning of the third quarter.

Prime high street yields currently stand at around 4.2% in Frankfurt, 4.6% in Hamburg and 3.5% in Munich, compared to 2.5% in London, according to Colliers.

Deka has ambitious investment targets and intends to invest between €2 bn and €2.5 bn across its property funds globally this year, according to Schmengler. ‘So far, we have invested €1.2 bn. Last year, we invested around €2.1 bn across our property funds and sold around €1.3 bn of assets. I’d expect it to be similar this year.’

Also this week, Deka sold the Christ Church Court office in London to Asian private investor Hui Wing Mau, who is the owner of Shimao Property, one of the largest property developers in China for an undisclosed sum.

Ongoing uncertainty in the eurozone surrounding the Greek debt crisis will not have an impact on Deka’s investment plans this year, according to Schmengler. ‘We don’t hold any assets in Greece or Turkey. As a result, the Greek crisis doesn’t have an impact on our investment, not least because we focus on core markets.’

Deka is often in competition with rival German fund manager Union Investment, although they have slightly different investment strategies. Union has a reputation for doing more off-market deals, whereas Deka is probably more active in the office sector.

‘You would assume there is a lot of competition between them but there are also a lot of other tough competitors, especially French open-ended funds entering the market,’ said Marcus Lütgering, head of office investment in Germany at JLL. ‘Both are very successful fundraisers. They both hold a very strong position in Germany and have strong asset management teams.’

Both Deka Immobilien and Union Investment had €27 bn of real estate AUM globally as of end-June 2015.