Jones Lang LaSalle


SPECIAL TO THE WALL STREET JOURNAL
By SARA SEDDON KILBINGER
March 8, 2006; Page B4

DB Real Estate Investment GmbH, the real-estate arm of Deutsche Bank AG, is changing its game. Fresh from the devaluation of its Grundbesitz-Invest fund, which reopened Friday, it is repositioning the fund as a European, rather than a German fund.

DB Real Estate closed the fund in December -- marking the first closure of an open-ended fund in Germany -- to prevent further investor outflows. DB Real Estate announced Dec. 9 that properties in the fund would be re-evaluated by independent auditors, sparking concerns that some properties may be overvalued. The fund had outflows last year of €1.37 billion ($1.65 billion) and was valued at about €5.9 billion before it closed in December.

The fund intends to sell about €1.7 billion of assets this year, mostly in Germany, to lower its weighting in its home market to around 50% within the next two years, said Tim Oliver Ambrosius, DB Real Estate's head of communications. The fund -- which invests mostly in prime, city-center offices -- holds around 60% of its assets in Germany, with the remaining 40% invested in countries such as the United Kingdom, Italy and France.

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The fund will invest in core European markets such as the U.K. and France, but it also will consider Central and Eastern Europe, Mr. Ambrosius said. Yields in Central and Eastern Europe are higher than those in Western Europe, because the markets are less developed and are seen as riskier. (The yield is the annual percentage return, expressed as the ratio of annual net income to the capital value of a property.)

Likely bidders for the fund's assets include European, U.S. and Asian investors, Mr. Ambrosius said. According to HVB analyst Andreas Weese, real-estate companies, such as Bonn, Germany-based IVG Immobilien AG, and closed-end funds are also likely to be interested.

According to DB Real Estate, the fund has been devalued by 2.4%, or €147 million, since its closure in December. The value of German properties in the fund decreased on average by 5.7%, or €222 million, DB Real Estate said. In contrast, the value of foreign properties increased on average by 3.3%, or €76 million. However, Mr. Ambrosius said some buildings in Germany have been devalued by as much as 25%, while the value of some assets abroad has risen by 10%, although he declined to give further details.

The company declined to say what the value of the fund is now, although analysts' estimates put it at around €5.3 billion, representing a devaluation of 10% from December. And while the German market is picking up, investors are unlikely to forget that the fund was closed, said Guy Barker, the Munich, Germany-based chief executive of real-estate advisory firm and manager Invesco Real Estate, a subsidiary of Amvescap PLC. "The devaluation of 2.4% -- although it was almost 6% for German assets -- makes you wonder what all the fuss was really about," Mr. Barker said.

In January, investors withdrew €4.18 billion from Germany's 35 open-ended real-estate funds, compared with inflows of €1.17 billion a year earlier. However, outflows for February are expected to be less dramatic, said Frank Bock, spokesman for the German funds association BVI. Preliminary figures for February -- which will be made public in mid-March -- suggest a sharp drop in outflows, he said.

Outflows for open-ended real-estate funds in Germany totaled €3.43 billion last year, €3.05 billion of which occurred in December, dwarfing November outflows of €107.53 million.