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NEW YORK CITY-London-based Eurocastle Investment Limited’s $2.4-billion purchase of the Dresdner portfolio involves 100% of an open-end fund which owns a portfolio of 303 commercial properties for approximately $2.4 billion. The properties are primarily office buildings and are largely occupied by Dresdner. The bank will continue to occupy their current space which represents approximately 80% of rental income on the portfolio, which is 15% vacant.

Eurocastle is externally managed by locally based Fortress Investment Group LLC. The deal makes the firm the largest publicly traded company focused on German real estate. The properties, totaling 845,516 square meters of leasable space, are concentrated in Frankfurt, Hamburg, Munich, Dusseldorf and Berlin. The purchase reflects an unleveraged initial yield of approximately 5%. Eurocastle expects to fund the purchase with equity and debt financing. The debt has been committed to by various banks and the equity will be raised through a public offering of common stock combined with an investment from a private equity fund managed by Fortress.

“This transaction provided a unique opportunity for Eurocastle to acquire a large scale portfolio that combines prime assets with a high quality core tenant under long-term leases,” says Robert Kauffman, head of Fortress’s European investment operations. Eurocastle director, Wesley Edens says this is part of the firm’s strategy. This transaction will mark a significant transformation for Eurocastle, making us one of the largest owners of commercial real estate in Germany.”

Company officials believe that with the acquisition puts the firm in a strong position to take advantage of growing investor demand for exposure to the sector. Pending adoption of REIT legislation in Germany, improving real estate fundamentals and distress among German open end funds are expected to provide strong growth prospects for Eurocastle, they maintain. The closing is expected to take place early next year.

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