Deutsche Asset & Wealth Management, the investment arm of Deutsche Bank, is eyeing other mega deals in Germany following its acquisition last week of the PalaisQuartier site in Frankfurt for €800 mln.

Deutsche Asset & Wealth Management, the investment arm of Deutsche Bank, is eyeing other mega deals in Germany following its acquisition last week of the PalaisQuartier site in Frankfurt for €800 mln.

The transaction marked the biggest single asset retail deal in Germany so far this year. DeAWM has taken a 90% stake in the deal, with Hamburg-based developer and real estate manager ECE Projektmanagement taking a 10% stake. ECE will also manage the adjacent MyZeil shopping centre, which forms part of the complex.

‘The deal represents our largest acquisition in Germany so far this year, reflecting our faith in the Frankfurt market,’ Jörn Stobbe, head of transactions and asset management for German, Austria and Switzerland at DeAWM, told PropertyEU. ‘The PalaisQuartier marks a unique investment opportunity for us. The site is in a prime location in Frankfurt, with fantastic views of the skyline, and offers a popular shopping mall on the Zeil, office space and a first class hotel. DeAWM would be open to similar deals in Germany, should we find the right investment opportunities,’ he added.

For ECE, the deal offered a rare chance to acquire a stake in a prime scheme in the heart of Frankfurt’s main shopping area, according to Olaf Ley, director of mergers and acquisitions at ECE. ‘The MyZeil shopping centre is also performing very well, which was another criteria, although we think we can optimise it. We quite often take a 10% strategic stake in a scheme, although we are flexible. ECE often continues to hold a 5% to 20% share in schemes that it has developed,’ Ley added.

CBRE advised the buyers and JLL advised the vendor.

According to Brian Tucker, head of German shopping centre investment at C&W, ‘it’s very unusual to get a chance to acquire something like this in the city centre, due to a real lack of opportunities’. Robert Menke, managing director of Colliers in Germany, dubbed it ‘an outstanding, huge ticket deal’. C&W and Colliers did not advise.

The PalaisQuarter comprises around 115,000 of rental space across five properties: the 33,800 m2 Nextower office block, the Jumeirah Frankfurt hotel comprising 26,300 m2, the 43,800 m2 MyZeil shopping centre and the recently restored 6,300 ms Thurn and Taxis Palace. The scheme was sold by KP Investments, a unit of Rabo Real Estate Group, itself a unit of Dutch lender Rabobank.

Interest in the PalaisQuartier site was extremely global, according to Jörg Ritter, a member of the management board at JLL in Frankfurt, who was involved with the deal. ‘We had interest from 19 countries within Europe, the US and Asia. It’s really hard to find a deal of this size in Frankfurt - and in such a prime location - hence the global interest.’

Investors are flocking to Germany’s retail sector because it remains robust, despite the country’s low economic growth of late. ‘As long as unemployment remains low, people will continue to spend,’ said Markus Schmitt-Habersack, chairman of investment in Germany at C&W. (Germany’s unemployment rate is just 5%, compared to a European Union average of 10.5%)

So far, there have been around €4.5 bn of deals in Frankfurt this year, which could rise to around €6 bn if some big deals go through before the year-end. Those deals include the ongoing sale of the Squaire. Several bids have now been submitted, according to those who track the market, with a sale expected to go through by the year-end. The ship-like development, which has a retail component, was built by IVG Immobilien for €1 bn in 2011. However, the company has run into difficulty in recent years due to waning demand for offices during the financial crisis. Blackstone Group, BlackRock and Tishman Speyer are all believed to have bid. Asian funds are also thought to have bid. IVG is believed to be seeking €700 mln from the sale, although industry insiders have said that it might go for closer to €650 mln.

Nonetheless, demand continues to outstrip supply, according to Tucker. ‘There is so much liquidity chasing retail opportunities and just not enough product. It could become even more extreme next year. Even if some of the funds liquidate assets, I don’t think there’ll be enough product to satisfy investor demand.’

Sara Seddon Kilbinger
Correspondent German-speaking countries