RREEF’s Karstadt investment in peril

The German government has rejected a request from Arcandor for €650 million of assistance from the national rescue fund, which would have helped keep the owner of store group Karstadt afloat. RREEF teamed up with Italy’s Pirelli Real Estate, Generali and the Borletti Group last year to buy a 49 percent stake in Arcandor’s Karstadt real estate portfolio of 164 stores. Goldman Sachs owns the other 51 percent.

German department store chain Arcandor could file for bankruptcy, plunging an investment by RREEF, Italy’s Pirelli Real Estate, Generali and the Borletti Group, into peril.

The German government has refused to provide assistance from its $160 billion rescue fund to the group, which needs to refinance a reported debt pile of €600 million at the end of the week. It is still waiting to hear if it can access a separate €437m credit line from state development bank KfW.

In a telephone interview with Reuters yesterday an Arcandor spokesman said bankruptcy may be the only option left for the chain. He said: “There is no alternative left to government aid.”

Yesterday Arcandor held talks with rival chain Metro with a view to forming a merger with its department stores chain Kaufhof.

Last year RREEF, the alternative asset management arm of Deutsche Bank, Pirelli Real Estate, Generali and the Borletti Group completed the purchase of a 49 percent stake in a company that owns the properties of Arcandor's Karstadt chain. Goldman Sachs’ Whitehall funds owns the other 51 percent stake.

The Highstreet portfolio comprises 164 properties located throughout Germany, providing a total gross area of 3.2 million square feet. The package is made up of 81 department stores, nine sporting goods stores, 28 parking lots, 14 office buildings and 32 other facilities for mixed use, retail points of sales, logistics and land.

The RREEF consortium did not disclose how much they paid for their 49 percent stake last year, however they said enterprise value was around €4.56 billion ($7 billion) with underlying debt of €3.5 billion secured by the properties.

Arcandor said in a separate statement at the time that that the value of the transaction was €800 million.