French asset manager La Française has said the French real estate market is showing signs of ‘thawing out’ in terms of some firms, including US opportunity funds, now looking to buy “risky asset segments”.
Paris-based La Française said in a quarterly letter today that “something is going on in the property investment market.” It continued: “Since early 2013, several major deals have gone down that aim to create value and not just obtain secure rental income, which could be a sign of a thaw in the ‘risky’ assets segment.”
It highlighted two deals in particular as exemplifying the noteworthy change in emphasis. In Paris, a German fund paid €283 million for a 300,000 square foot office on rue Lafayette that is currently being vacated by nuclear and renewable energy group, Areva. The investor is expecting the vacancy, but said it also foresees pocketing a capital gain when the building is subsequently rented, said La Française.
In the second example in La Défense, Paris’ newer office location, an American fund has been even more ambitious buying for €214 million the 1990s Tour Pacific office building totalling 570,492 square foot that requires major work and has been partially vacated. “Amid a rental market in La Défense with many spaces available second hand and rising vacancy rates, the investor is expecting to reposition the asset and cash in on the gain. Such a deal was unthinkable just a few months back,” analysed La Française.
La Française contrasted today’s market with the market it saw in the lead up to the global financial crisis in 2008. In the lead-up to the crisis a raft of strategies had been simultaneously deployed across all levels of risk. Since then however, the market has been driven by risk aversion and pared down to its safest segment.
“However, the first eight months of 2013 saw, on the office space segment in Ile-de-France, the return of deals containing rental risk (partial or total vacancy, risk of renters leaving, short-term leases, and/or renovations.” Several deals by opportunity-seeking firms, particularly from the US, are in the pipeline, the firm revealed, as they seek to “capitalise on the funding troubles of certain property owners”.
The factors persuading such firms to engage again with the French market were pinpointed by La Française: Some are betting the recession in Europe would generate opportunities in terms of the rental cycle bottoming out. Concurrently, recent sentiment that the ‘worst of the recession is over’ and thoughts of a recovery in the property markets are now being entertained. Thirdly, there is now highly-favourable lending conditions and the re-opening of financing for risky assets are present, and lastly, the analysis of a medium-term shortfall in quality new property on the main office markets in Ile-de-France also suggest timing could be good.
La Française’s observations come two months after PERE suggested in a comment piece called ‘Vive la France’ that opportunistic firms were getting excited about France as the next destination in Europe. Laurent Halimi, partner at Paris-based Weinberg Capital Partners, said France was in “structural recession”. Real estate opportunities are being created as a result, and that was a reason to get excited, he said. Weinberg Capital Partners has raised more than €80 million of equity for a value add and opportunity fund focused on France.