France: Banks’ focus on core affects prices of value-add

Banks are tightening the purse strings during the crisis but good projects can still get financing, experts agreed at Real Asset Media’s Market Snapshot: Investing in France virtual briefing, which was held online on REALX.Global.

“Banks are being shy and senior financing is really hard to get,” said Guillaume Turcas, managing partner, Faro Capital Partners. “Value-add projects are a bit on hold because of the financing issue and must rely on alternative lenders, not even debt funds but hedge funds.”

The lack of financing has an impact on valuations. Quality assets in good areas have seen no repricing, while prices in less desirable areas have declined by anything between 5% and 20%.

“It all depends on product types,” said Andy Watson, partner, Europa Capital. “On value-add, as financing is either non-existent or expensive, prices have fallen by 20%, but Central Paris core has seen no change in pricing because rents are holding up.”

Property floats on a sea of debt, as the old saying goes, and at the moment Government support schemes are keeping water levels high, he said: “When that support drains away, then we’ll see the true situation.”

In difficult times banks opt for caution and focus on their core clients.

“‘We’re focused on core and core-plus, we don’t do value-add, spec or development financing anymore,” said Renaud Jézéquel, general manager Paris branch, Helaba. “Most of our direct competitors have done the same.”

Debt funds get more opportunistic

The strategy allows for flexibility, though, he said: “We’ve just financed One Monceau, a well-located quality office building with a strong spec component, a sale and leaseback by ABN Amro. In future we might do more value-add and less conservative stuff.”

Debt funds will look at opportunistic deals “until banks decide to go into that space as well.”

Good projects will always find backers, Jézéquel said: “Lenders focus on quality and resilience. Strategic real estate will get financing, even for value-add. It’s the alternative asset classes like hospitality that are for specialist lenders only.”