The DekaBank subsidiary is Germany’s market leader for open-ended property funds. Last year it pulled in €2.2bn for new invesment and launched its first global fund
Deka Immobilien Investment is the property specialist within DekaBank group, the fund management organisation for German savings banks. The fund manager pulled in a net €2.2bn in 2002 and, with a market share of 21.6%, is the market leader for open-ended property funds. This performance was part of a record-breaking year for the sector; capital inflows to German property funds totalled €14.9bn, more than doubling the previous record of €7.4bn set in 1999.
Deka runs three open-ended public funds, with total assets of more than €15bn, as well as six Immobilien-Spezialfonds for institutional investors, with a portfolio worth a total of €1bn. “We expect the strong inflow of funds to continue this year,” says Dr Willi Alda, chief executive officer of Deka Immobilien Investment and a professor at Stuttgart University. “We have a clearly defined investment strategy for each of our funds, so investors can select the risk/reward profile that suits their preference.”
The first fund, Deka-ImmobilienFonds, was set up in 1967. Its investment focus is mainly on the German market, but a few investments in other European markets have been added. The second fund, Deka-ImmobilienEuropa, invests in Europe but has some overseas assets. Last November, the fund manager launched its third public fund, Deka-ImmobilienGlobal – its first global open-ended property fund. The portfolio split for this fund will be Europe 40%, Asia Pacific 30%, North America 25% and Latin America 5%.
For the next 18 months, the fund manager expects to see rents fall and vacancy rates rise in Europe’s main markets. But Alda is not unduly worried by these prospects – as long as the number of new developments remains moderate. “We have adjusted our investment strategy accordingly and will be very selective when it comes to new developments, particularly speculative ones,” he says. Developments account for 8% of Deka’s combined portfolios, of which two thirds are prelet or covered by rental guarantees.
Last year the fund manager spent €3.8bn on new investments and sold properties worth €225m. Its property funds’ portfolio is now spread across 17 countries. Last year it made investment debuts in Ireland, Italy, Sweden, Denmark and the Czech Republic, and was the first of its peer group to venture into Asia by acquiring two Tokyo office buildings in prime locations.
In Copenhagen, Deka Immobilien invested €50m in the 13,000m2 Amerika Plads office scheme in the city’s docks area. The project, which is being developed by TK Development and the Harbour Authority of Copenhagen, was started last June and is almost fully prelet. In Stockholm, Deka is forward funding Skanska’s mixed-use CityCronan scheme, which includes 42,000m2 of offices, shops, flats and restaurants. It is a flagship project among a series of schemes to regenerate Stockholm’s inner city, and Deka’s €255m participation is scheduled to close this June.
Despite Germany’s fairly bleak prospects, Deka has acquired several buildings in domestic markets. In Frankfurt, Deka-ImmobilienEuropa invested €163m in Carr, Mainzer Landstrasse, a 24,000m2 office block due for completion this spring. It is prelet to Deutsche Asset Management Investmentgesellschaft and DWS Investment, both part of the Deutsche Bank group. The fund manager has also started a €32m, 12,000m2 office scheme in Frankfurt’s central business district. It is due to come onto the market in early 2005.
In Dsseldorf, Deka has signed a contract for a €180m mixed-use project being built by international developer Hines. The 28,000m2 building is expected to be completed this August and 60% of the office space has been prelet.
The fund manager estimates that it will invest €3bn to €4bn this year, mainly in the European property markets. “Markets do not develop in a synchronised fashion, but we are confident that there are sufficient investment opportunities for us,” says Alda. “For example, Milan’s vacancy rate is still very low, at 2%, and modern office space is in short supply.” Deka recently bought four office buildings in central Milan for €130m.
Other core markets for Deka this year will include Spain, France and Austria. “We will not entirely neglect Europe’s other markets, but we will take a more selective approach there,” says Alda. The fund manager also plans to increase its exposure in the Nordic countries and Portugal.
Alda is looking further afield for Deka-ImmobilienGlobal, notably to Australia and Japan. “The US is also a target market, but we feel that the timing is not yet right for investment there,” he says. Given the fund’s risk profile, South Korea or Mexico may also be possible investment targets. Deka-ImmobilienGlobal is expected to earn investors a yield exceeding Deka-ImmobilienEuropa’s by, on average, 100 basis points.
Deka is also diversifying the portfolio in terms of property types. Last year the fund manager acquired several properties in the retail sector, which is firmly on the investment agenda. In Barcelona, Deka invested in the 58,500m2 Centro Comercial Diagonal Mar shopping centre, and El Triangle, a mixed scheme with around 16,100m2 of retail and nearly 8,000m2 of offices. The fund manager also bought the 26,000m2 Mahon Point shopping centre project in Cork, Ireland.
In Germany, Deka has joined forces with ECE Projektmanagement to develop a 33,000m2 shopping centre in Karlsruhe. ECE will be in charge of development work on the €220m project, called Ettlinger Tor, and will also manage the completed centre. Construction will start on the project in April.
“As part of our diversification policy we would also like to buy more hotels in the four to five-star range,” says Alda. In January, the fund manager announced its acquisition of the five-star Le Meridien on the Ramblas in Barcelona. The hotel is being refurbished for €20m.
Deka would also like to increase its exposure to the logistics property market. Its logistics assets include a 27,000m2 project in Moissy-Cramayel and a 28,000m2 centre at St Witz. Both properties are near Paris and were built and acquired speculatively, but were later prelet.
Deka’s funds’ performance for the financial year 2001/2002 was poorer than in the previous year. Alda says: “Our bonds strategy is very conservative, and low interest rates coupled with a high inflow of funds has had a negative impact on our funds’ performance. We also experienced lower capital gains on our property investments than in previous years.” For the 12-month period ending 31 December 2002, Deka-ImmobilienFonds gave investors a 3.7% per annum return. Deka-ImmobilienEuropa yielded 4.0%.
As part of an attempt to achieve greater transparency, Germany’s open-ended property funds have obtained ratings from Moody’s Investors Services. In Moody’s management category, Deka achieved the highest possible rating, at Aaa. In the investment quality category, Deka-ImmobilienEuropa was rated Aa1 and Deka-ImmobilienFonds was rated Aa2. In terms of performance, Deka-ImmobilienEuropa was awarded five stars – the top rating – while Deka-Immobilien- Fonds achieved merely two stars.
Deka’s rating has helped it to extend its property fund management services to institutional investors. Alda expects Deka’s six open-ended Immobilien-Spezialfonds for institutional investors to increase their combined portfolio by 70% this year. Immobilien-Spezialfonds are very popular with German pension funds and insurers, particularly as a way to satisfy their growing appetite for cross-border investment. The funds are tax-transparent vehicles governed by specific legislation.
Deka is originating new fund products for institutional investors. Features of these Individuelle Immobilienfonds include high leverage and a fixed term. Investments will be made through tax-efficient structures and the funds’ strategy will be determined by their managers in close co-operation with the investors. Alda expects to launch the first of these funds soon.
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Financial highlights, September 2002 |
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Property’s performance fell slightly on the previous year |
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Deka-ImmobilienFonds |
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Total assets |
€7,898m |
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Property assets |
€5,517m |
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Property performance (rental income and capital gains) |
5.0% p.a. |
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Deka-ImmobilienEuropa |
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Total assets |
€7,003m |
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Property assets |
€4,312m |
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Property performance (rental income and capital gains) |
5.9% p.a. |
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Source: Deka Immobilien |
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Deka Immobilien Mainzer Landstrasse 37
60329 Frankfurt am Main
Tel 49 69 7147 0
Fax 49 69 7147 3529
www.deka-immobilien.de
