Outlook 2024: no ‘big crisis’ ahead in the French market

There is a lot of restructuring and refinancing activity ahead but no real distress in the French market, experts agreed at Real Asset Media’s European Outlook 2024: Focus on France briefing, which took place recently in Paris.

The panel in Paris. From left to right: Gautier Beurnier, Irène Fossé, Silke Nadolni, Benjamin Cartier-Bresson, Salvi Cals.

“I wouldn’t bet on a big crisis,” said Benjamin Cartier-Bresson, head of Paris office, Berlin Hyp. “There will not be a debt funding gap, as banks have been very cautious and professional. When interest rates collapsed, we underwrote loans at a debt yield of minimum 6% and now we’re there. Leverage LTVs have not increased.”

The worst is over, he said. It has been difficult to adapt to three consecutive shocks: the pandemic and working from home trend; ESG requirements and the consequent need to invest more to upgrade assets; the rapid spike in interest rates. But now the market has moved to a transition phase.

“I believe that things can only get better now,” said Cartier-Bresson. “Leverage has to go down, but the way to do it is by negotiating. Senior lenders have no appetite for repossessing properties. Investors need to speak to their lenders as soon as possible, rather than wait until the covenant is breached.”

The way forward is negotiating, sharing the problem and finding solutions that work for both investors and lenders until market conditions get better.

“We see a lot of restructuring and there will be more next year and in 2025,” said Silke Nadolni, avocate associée, partner, LPA-CGR Avocats. “But we don’t call it distress.”

The real problem is valuations, said Gautier Beurnier, country manager France, head of transactions, CBRE Investment Management: “I think the distress will be related to the assets rather than the debt, as prices of some assets will drop dramatically.”

The pricing environment is also luring foreign investors back.

“We’re seeing US players come back to the market with a strong appetite,” said Salvi Cals, managing director France, Panattoni.

Opportunistic investors are already looking around, but French equity investors are also taking advantage of the decline in valuations to make acquisitions.

“We expect foreign investors to come back looking for good deals,” said Irène Fossé, director research and strategy, AEW France. “But the good thing about the French market is that it has a solid base of domestic investors who provide stability, and the certainty that capital will never suddenly disappear.”