Arcandor Nears Sale
Of Real-Estate Portfolio

The real-estate investment arm of Deutsche Bank AG and Pirelli Real Estate are close to acquiring a real-estate portfolio from Arcandor AG, a German mail-order and department-store company, for €800 million ($1.18 billion), according to people familiar with the matter.

The deal with Deutsche Bank's Rreef and Pirelli Real Estate, in which tire maker and broadband-services company Pirelli & C. SpA owns a 52% stake, is expected to be announced early next week.

Arcandor's head of communications, Jörg Howe, confirmed the company is in the "final stages of negotiations" to sell a portfolio that includes 85 Karstadt stores -- including Europe's biggest department store, Berlin's KaDeWe -- as well as 12 Karstadt Sport stores and some offices. As part of the deal, Rreef and Pirelli Real Estate may acquire a minority stake in Arcandor's retail business, according to people familiar with the deal.

Karstadt, Arcandor's department-store division, will lease back the buildings on 15-year leases, with an option to extend the leases by an additional 15 years, Mr. Howe said.

Rreef and Pirelli Real Estate declined to comment.

"Arcandor's properties are prime retail properties in good locations, so they would be very popular with investors," said Gerhard Kemper, managing director of Kemper's Deutschland GmbH, a real-estate agency specializing in retail property, in which Cushman & Wakefield Inc. owns a stake. "This will be the biggest retail sale of this kind this year in Germany and I think it will send a signal to the market that big deals are possible, even in the current climate," he added.

The expected deal with Rreef and Pirelli Real Estate is part of Arcandor's plan to sell its 49% stake in a real-estate joint venture it formed last year with Whitehall, a Goldman Sachs Group Inc. real-estate fund, which owns the remaining 51% stake. Goldman Sachs spokeswoman Janina Boyers declined to comment on whether the company also intended to sell its stake.

A total of 174 properties were put into the joint venture last year, valuing the portfolio at €4.5 billion. The deal allowed Karstadt, which narrowly escaped bankruptcy in late 2004, to wipe out its debt of €3 billion.

When Arcandor, formerly called KarstadtQuelle AG, said it would part with its real-estate portfolio in the spring of 2006, it pioneered a shift toward property sales that has since spread throughout the European retail sector. In recent months, some of Europe's largest store chains have announced plans to sell part or all of their real-estate assets to free up funds for other purposes.

In August, Europe's largest retailer, Carrefour SA of France, said it was planning to float its real-estate portfolio as a new, separate company on the Paris Stock Exchange by June, despite current credit market woes.

In April, U.K.-based retail giant Tesco PLC laid out plans to raise more than 5 billion pounds ($10.3 billion) from real-estate sales to free up more cash to fund its growth. Rival U.K. retailer J Sainsbury PLC received two takeover bids since February, both ultimately unsuccessful, but primarily driven by its real-estate holdings. Industry experts also predict a more active real-estate strategy at Metro AG, one of Arcandor's German rivals, whose new chairman, Eckhard Cordes, has said he will increase shareholder value.

Last year, Rreef and Borletti Group bought French department-store chain Printemps from retail and luxury goods company PPR SA.

-- Cecilie Rohwedder contributed to this article.

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