KanAm fund shuns skyscraper where UBS top tenant

FRANKFURT, Oct 16 (Reuters) - German fund manager KanAm has pulled out of a deal to buy an office tower under construction in Frankfurt's banking district because it does not want to increase its rental exposure to the battered financial industry.

Swiss bank UBS (UBSN.VX) is already signed up as the biggest tenant in the 168-metre high OpernTurm skyscraper scheduled for completion in December 2009.

"KanAm has decided not to exercise its option to buy the OpernTurm," a KanAm spokeswoman told Reuters.

"The reason is the current turbulence in financial markets, which is making the outlook for banks uncertain," she said. "At this stage the fund does not want to increase its rental exposure to the financial industry."

Deutsche Bank (DBKGn.DE) and the European Bank for Reconstruction and Development (EBRD) are tenants in buildings owned by KanAm in London.

Frankfurt is Germany's financial capital and the OpernTurm has a prime location in the city's banking district. Leases have already been signed for more than half of the space for rent.

The 67,000-square-metre, 42-storey OpernTurm being built by property developer Tishman Speyer would have been the first German property in the portfolio of KanAm's real estate fund, KanAm Grund Kapitalanlagegesellschaft mbH.

When KanAm announced the OpernTurm deal on Sept. 19, it said the purchase would require no debt financing. The real estate fund had net inflows of more than 600 million euros ($808.5 million) in the first eight months of 2008.

KanAm declined to disclose the price at the time but a source close to the deal put it "at the lower end of a range between 400-600 million euros."

Marcus Lemli, head of capital markets at property consultancy Jones Lang LaSalle in Germany, said the OpernTurm setback reflected a worrying lack of confidence.

"It is worrying that confidence is fading further. The transaction did not collapse because of financing but apparently due to a lack of conviction or hope that the crisis would soon be over," Lemli said. (Reporting by Peter Starck; Editing by Victoria Bryan)