Goldman tests appetite for Europe’s biggest department store

The Wall Street bank has decided to tap global demand for 'super prime' property with the sale of Continental Europe’s largest department store, KaDeWe, with bids expected to be in the region of €750m.

Goldman Sachs is lining up the sale of the Kaufhaus des Westens (KaDeWe) in Berlin – Continental Europe’s largest department store – from within its Whitehall Funds global opportunistic real estate series.

The Real Estate Principal Investment Area (REPIA) of the Wall Street bank has been sounding out potential buyers for the KaDeWe store for a number of weeks, with bids expected to be in the region of €750 million when the process is fully under way, though no guide price has been given.

Among those said to be looking at the asset are large international pension funds, sovereign wealth funds and ultra-high net worth individuals.

The decision to sell the 60,000 square metre behemoth department store, which is the largest in Europe after Harrods in London, reflects a number of key themes that were underlined this week at the EXPO REAL trade show in Germany.

For one, demand for prime property in major cities is very strong. Broker Cushman & Wakefield revealed in its Winning in Growth Cities report this week how low global interest rates were luring investors towards commercial property markets in core global cities.

Michael Rhydderch, head of EMEA Capital Markets at Cushman & Wakefield, said: “Nervousness amongst investors caused by the sovereign debt crisis has focused most activity on the largest and most liquid markets and London has been the standout beneficiary from this. Going forward, however, it is clear that the major German cities will prove particularly attractive both in terms of their defensive qualities and the relative strength of their occupational markets. Although a complex market, Berlin will continue to increase its share of the investment market.”

Today, that prediction seemed to have gained further credence as AXA Real Estate Investment Managers (AXA REIM) announced a 50,50 joint venture with Norges Bank Investment Management (NBIM) to buy two buildings in Germany, for a combined €784 million.

Yesterday at EXPO, property services firm DTZ highlighted the wall of money available for real estate investing in 2013 had increased 4 percent in the last six months to $311 billion.

Concerns over Europe’s sovereign debt crisis have meant transaction volumes and capital values in Europe have lagged behind Asia and the Americas in the last 18 months, but DTZ’s report said Europe saw the greatest increase in equity available, rising 7 percent to $58 billion.

The KaDeWe department store came under the ownership of REPIA’s Whitehall Funds in 2006 when it bought a 51 percent stake in the real estate assets of the Karstadt chain, including around 85 department stores and other assets. Two years later, RREEF, Pirelli, Generali and the Borletti family acquired the remaining 49 percent.

As part of the deal, the investors financed a portfolio of 47 Karstadt retail properties and other assets covering 778,000-square-metres of space in a CMBS transactions, known as Fleet Street Finance Two. The €1.12 billion CMBS deal though has been widely impacted by the troubles of Karstadt and its parent Arcandor, which both filed for insolvency in 2009. Billionaire investor Nicolas Berggruen then acquired the Karstadt chain in 2010.

The department store itself has a long and interesting history having first opened in 1907. Top end brand products sold in the store include Rolex, Boss, Armani, Gucci, Chanel, and Cartier.

If the sale completes this year, it could become the largest single asset deal in Germany, according to data from Real Capital Analytics.

Prior to AXA REIM’s announcement today, the largest has been the sale of an 80 percent stake in the Gropius Passagen shopping centre in Berlin to TIAA-CREF in joint venture with German real estate company Mfi Management fur ImmobilienMfi for a reported €341 million.