Capital & Regional has exchanged contracts with US Fund Apollo Real Estate Advisors to set up a joint venture for its German retail assets.

The co-investing property asset manager said yesterday that Apollo will buy around half of Cap & Reg’s equity investment in the German portfolio for around €65.6m (£51m).

As part of the deal Cap & Reg and Apollo will also buy the 10.54% equity interest of the Hahn Group for €12m (£9.5m), realising a €4m (£3.1m) appreciation for Hahn.

Existing bank debt and interest rate swaps will remain in place.

The 5m sq ft German portfolio comprises around 50 out-of-town retail parks, mostly in western Germany, and was valued at €637m (£500m) at the end of June 2008. It also includes an additional 1.7m sq ft of development land. The portfolio will continue to be managed by Cap & Reg’s team.

Cap & Reg said it will incur professional fees and a write down relating to the value of interest rate swaps but cannot determine the extent of these costs yet.

The deal would be the latest in a raft of measures at Cap & Reg designed to cope with the property downturn and to reduce its debt.

Along with its co-manager Morley, it has paid off bank debt at the Mall shopping centre fund with £572m raised from property sales and an equity raising.

It also sold an 80% stake in its trade counters arm, Fix UK, to Paradigm Real Estate Managers and Bank of Scotland Corporate for £35m earlier this year.

It plans to sell assets from its £1bn Junction fund, which was close to breaching its loan-to-value covenants.

New chief executive Hugh Scott-Barrett is expected to announce a new strategy for the group when Cap & Reg publishes its half year results, on 28 August.

It will include plans to offer its asset management skills to cash-rich investors and set up joint ventures and smaller funds rather than its current model of setting up large property funds and retaining a large stake, as revealed in Property Week 25.07.08.

Cap & Reg will seek shareholder approval for the deal after its interim results and it expects the disposal to complete by the end of September.