KanAm fund acquires trophy OpernTurm in Frankfurt

Open-ended real estate fund KanAm grundinvest has acquired Frankfurt’s trophy OpernTurm from developer Tishman Speyer, marking the fund's first German acquisition.

While the purchase price has not been disclosed, KanAm is likely to have paid around EUR 500 mln, according to those who track the market. The deal - which was funded entirely by equity - also represents a departure from the fund’s typical investment remit of prime offices in high-growth locations in major European cities outside Germany. The fund also invests in offices in major North American cities.

'The OpernTurm is such a trophy building that we were prepared to make an exception and invest in Germany,' said KanAm spokesman Michael Birnbaum. ‘A building like this in the heart of Frankfurt's financial center doesn’t come along every day. However, while we made an exception to buy this property, it’s too early to say if this marks a change in strategy going forward,’ he added.

Yet the OpernTurm would likely have fetched about EUR 600 mln - or 17% more - at the beginning of last year, when the market was at the top, said Raffaele Lino, head of business development Europe at DTZ Corporate Finance in Frankfurt.

The property, which comprises two interlinked office towers over 42-storeys, next to Frankfurt’s historic old opera house, is still under construction. The 168-meter high towers, which were designed by Frankfurt-based architect Christoph Mäckler, are expected to be completed in December 2009. When completed, the towers will offer 67,000 square meters of office space. In addition, there will be childcare services, a range of restaurants and an underground car park for 580 vehicles.

However, the current banking crisis is likely to make it more difficult to secure pre-lettings in the building, according to Lino at DTZ Corporate Finance in Frankfurt.

‘It’s harder to pre-let to banks in Frankfurt at the moment, given the current banking crisis and uncertainties regarding takeovers and job losses. For this reason – and given the OpernTurm’s location in the heart of the financial district - it could be hard to find tenants. Also, given the current turmoil, there is a danger that banks may not be viewed as the most sought-after tenants, which could postpone the signing of any banks taking space,’ he said.

Nevertheless, UBS Deutschland AG - the German arm of Swiss-based bank UBS AG - which signed a contract two years ago to occupy space in the OpernTurm, still intends to honour its contract move around 1,100 staff into the building at the beginning of 2010, said UBS spokeswoman Anja Schlenstedt in Frankfurt. Together with Philadelphia law firm Morgan Lewis, the two pre-lettings account for around 50% of the total space, according to Birnbaum.

The tower is designed to be a 'green' building, with the aim of obtaining a LEED-Gold certification. As such, the building is designed to undercut the required energy saving specifications according to Germany’s energy saving legislation by 23%, which should enable the building to cut CO2 emissions by 1,800 tonnes per year, according to KanAm.

KanAm launched its open-ended propery funds in 2001. Its grundinvest fund currently has around EUR 4.9 bn of property assets under management, of which around 37% is invested in France, 26% in the UK and 13% in the US. The remainder is invested in markets such as the Netherlands and Belgium.