DekaBank eyes $780 million U.S. property spree

By William Kemble-Diaz and Sinead Cruise

LONDON (Reuters) - German asset manager DekaBank is looking to invest up to 500 million euros ($776.4 million) in U.S. commercial property, having recently upped its exposure to British real estate, board member Matthias Danne said on Monday.

"Now cautiously, step by step as in the UK we go back because we believe it could be the right point in time to go back," Danne told the Reuters Global Real Estate Summit.

"We would be prepared to do 500 million euros on top if there are possibilities in the market," he said, naming Washington D.C., Boston, Seattle, San Francisco, Los Angeles and New York among DekaBank's favorite locations.

He said the company, the asset management arm of Germany's savings banks, was also eyeing "one or two other deals" in and around London, having snapped up two offices this year in the UK capital's City financial district, where property valuations have tumbled in line with the rest of the UK market.

DekaBank is Germany's largest operator of open-ended property funds with 18 billion euros in assets under management.

It has seen inflows into its property funds of about 1.1 billion euros so far this year, Danne said.

According to industry body BVI, German property funds raised 6.7 billion euros last year and 3.6 billion euros in the first four months of 2008, making them cash-rich at a time debt funding is scarce.

Danne said prime commercial property markets in the UK were closer to bottoming than in mainland Europe.

"Most of the yield increase is already done," he said, referring to a year-long correction that has so far chopped 18 percent off average UK commercial property values and driven yields on the highest-quality, modern, and best-located office facilities in the City up to 5.6-6.0 percent, Danne said.

Yields measure rental income in proportion to a building's capital value. They move inversely to price.

"In the UK, after a (yield) shift of 100-125 basis points, we wouldn't expect more than another 25-30, maybe 40," he said.

That was in contrast to less transparent and less liquid commercial property markets in the rest of Europe, which had lagged the UK's property market correction and where in broad terms there was some potential for yields to rise by 50-60 basis points.

In some cases, notably in Madrid, there was some potential for a more aggressive reaction.

Although it was impossible to know for sure where the Madrid office market was currently priced due to a lack of deal-based evidence, there was some potential for prime yields to rise by more than a percentage point from where they had been below 5 percent before the onset of the global credit crunch.

"I would expect we see a 6 percent-plus," Danne said. "Maybe not in 2008, maybe in 2009."  Continued...