UNITED STATES - RREEF, the real estate investment division of Deutsche Bank, is now considering three different options to help it deal with some debt issues for its open-ended commingled fund, RREEF America III.

RREEF hosted a conference call with all of its investors in RREEF America III which allowed it to spell out all of the issues with the commingled fund and the options that it is considering, as well as advise investors that it was still in discussions with lender about debt concerns.

Those concerns were in part revealed in a memo from February 10, 2009 to executives at the State Universities Retirement System of Illinois from its consultant Ennis Knupp + Associates. 

According to information available at that time, approximately $840m (€607m) or 38% of the commingled fund's debt is due to mature in 2009 and around $340m of that, or 43%, comes with an option to extend the term of the loan for up to two additional years.

However, the lenders need to be willing and able to extend the loans, which market sources say is questionable given current market conditions.

RREEF's strategies under consideration as a result are to try to work out an extension from its syndicate of existing lenders, to file for Chapter 11 bankruptcy or to try and raise new capital from the existing investors in the fund through a preferred equity raise.

Yet investment experts in the US pension fund and real estate industry believe it will be difficult for RREEF to get things resolved through talking with its lenders or through new fundraising.

Most lenders in today's marketplace are said to be unwilling to give extensions to many of their customers while most pension funds do not have any capital to invest as they are already over-allocated to real estate through the denominator affect.

RREEF America III is said to have cash on hand totalling $265m, which would satisfy all debt maturing by the end of June 2009 but any debt payable after that point will require additional cash.

However, pension funds that have invested in RREEF America III have seen the value of their investments drop significantly over the past eight months.

Illinois State Universities has seen this first hand, as it made a $30m commitment to RREEF America III in 2005 yet by the end of March 2009, it was valued at just $15m, according to Dan Allen, chief investment officer for the pension fund.

"We are monitoring our investment in RREEF America III very closely. Ennis Knupp is in contact with RRREEF on a daily basis. We are still in the fund at this point."

Another example of falling values is with the San Bernardino County Employees Retirement Association as it made a $25m investment in RREEF America III several years ago which was valued at $13m in October of 2008.  By the end of last year, it had gone down to $9m, according to Don Pierce is an investment officer for San Bernardino County.

"We are expecting another 10% to 20% drop in value when the 2009 first-quarter numbers come out," said Pierce.

RREEF America III is a value-added open-ended commingled fund created in 2003 and had a gross asset value of $2.6bn in May.

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