Deutsche Bank could be nearing a decision to pull the curtain down on its 10-year ownership of New York-based RREEF due to regulatory changes and associated costs. As PERE was going to press, the Frankfurt-based bank announced it was reviewing the structure of Deutsche Bank Asset Management, the outcome of which will dictate whether divisions such as New York-based RREEF are retained or sold.

A sale of RREEF, which has about €41 billion in assets under management, would be reminiscent of the offloading of ING Real Estate Investment Management by Dutch banking group ING Group in that RREEF also is a global organisation operating in Europe, Asia and the US with an array of real estate funds and a large number of institutional investors. As such, the firm would be an obvious opportunity for a suitor looking to grow in real estate investment management, or it could present the opportunity to senior managers of RREEF to orchestrate a management-led buyout as Clarion Partners did in North America. 

Joining the Deutsche family

It was 2002 when Deutsche Bank made the decision to ramp up its presence in real estate investment management by acquiring RREEF, paying $440 million for the operating business and a further $50 million for co-investments that RREEF had entered into. Back then, RREEF was a US company with $16.2 billion in assets under management and proven aptitude at buying industrial properties, office buildings, apartments and shopping centres. Its investor base consisted of US corporate and public pension funds, including the California Public Employees’ Retirement System and the Los Angeles County Employees’ Retirement Association.

The takeover of RREEF made sense because Deutsche Bank’s private client and asset management division wanted to offer clients an improved exposure to US assets as well as grow as a manager of third-party capital. RREEF survived independently alongside DB Real Estate until 2006, when all the global real estate asset management businesses at Deutsche were consolidated under the RREEF brand name.

Although the takeover of RREEF was the big deal, Deutsche Bank also made inroads into the management of global opportunistic funds via the takeover of Bankers Trust for $10 billion in 1998. Control of that firm’s opportunistic real estate business fell to Deutsche with the 2003 launch of the DB Real Estate global opportunity funds series.

Victim of circumstance

Almost 10 years since Deutsche Bank acquired RREEF, it now seems that the regulatory changes and associated costs of running a global asset management business with €516 billion in assets under management have conspired to cause the bank to consider its future. Specifically, it is thought that the Volcker rule, limiting the bank to no more than 3 percent ownership and operation of a hedge or private equity fund, including those focused on real estate, has been a factor in the review.

Unsurprisingly, upon news of the review, Deutsche Bank was keen to send out a message that various heads of businesses within Deutsche Bank Asset Management are being “supportive” – perhaps code for ‘they aren’t leaving’. RREEF’s leadership includes global head Pierre Cherki, chief investment officer Kurt Roeloffs, head of Europe ex-Germany Gianluca Muzzi and head of Asia Niel Thassim.

Should RREEF ultimately find itself up for sale, potential bidders would be looking at a real estate manager with around 600 professionals in 22 cities and assets concentrated in core properties and securities (see RREEF at a glance). The opportunistic side of the business is relatively small, with just €4 billion of the division’s overall assets.

According to sources, RRREF has been sounding out investors for two products in the opportunistic space and both were in Europe. One is a club-style arrangement, while the other is more of a traditional closed-ended opportunity fund.

Most importantly, in acquiring RREEF, a buyer would be taking over a firm that has worked hard to attend to its existing portfolios in the wake of the global financial crisis. That is sure to have been noticed by its investors, which could well hold the key should they be required to approve a change of management.

RREEF at a glance
Assets by region
Americas: €22bn
Europe: €16.4bn
Asia Pacific: €3.4bn

Assets by style
Core: €22.1bn
Value-added: €5bn
Opportunistic: €4bn
Securities: €10.7bn