German Real-Estate Fund Freezes
Operations Amid Run on Assets
For the second time in two days, a run on assets has caused a German real-estate investment fund to freeze its operations. KanAm Grund Kapitalanlage GmbH closed its €3.2 billion ($3.87 billion) KanAm grundinvest fund yesterday after investors put in orders to withdraw almost 20% of the fund's assets in 24 hours.
The KanAm grundinvest fund was the third open-ended real-estate fund in Germany to suspend operations in the past five weeks.
Michael Birnbaum, a spokesman for KanAm Group, the funds' Munich-based parent, called investor reaction a "virus" that spread to the second fund after already-skittish German real-estate investors pulled out of the company's smaller US-grundinvest fund on Wednesday.
The events were set in motion earlier this week when a German ratings agency cut the US-grundinvest fund to "sell" because of its investments with the troubled U.S. real-estate investment trust Mills Corp. That helped cause a surge in withdrawals that left the fund with no cash to pay investors, forcing KanAm to freeze it. German law mandates that open-ended funds have 5% of their investments in cash or other liquid investments.
The ratings cut followed a U.S. Securities and Exchange Commission inquiry into Mills, with which the German fund has two joint-venture shopping malls in Milpitas, Calif., and Nashville.
Mr. Birnbaum said KanAm's fund has received "great returns" from the two Mills malls -- 6.1% from the Milpitas property and 8.1% from the Nashville property annually, and sees no need to re-evaluate its properties.
The problems at KanAm are more bad news for Mills, whose shares have been hammered over the past five months.
KanAm has been a big source of capital for Mills and is a major stakeholder in the $1.2 billion Xanadu mall project that Mills is developing at the Meadowlands in New Jersey, near New York City.
Mills owns 42 shopping centers, mostly in the U.S., and is partners with KanAm in 12 of those properties. Mr. Birnbaum said KanAm wasn't second-guessing its relationship with Mills. "We think Mills is one of the most successful operators and developers of malls," he said.
The KanAm news prompted Stifel Nicolaus & Co. analyst David M. Fick to downgrade Mills' stock. "We question whether Mills has the resources, time, or execution capability to thrive as a public company," he said in a report yesterday.
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