Market awaits pacesetters as new core values are sought

If one word was used to characterise the current market it would be ‘standstill’ said Faro Capital Partners’ managing partner Guillaume Turcas.

“People are watching carefully what’s happening, waiting for the first mover, the first big firm to set the tone for the next step in the market,” Turcas said, noting the mood at the recent MIPIM real estate event.

All eyes are on the core buyers because no one has seen a large deal that has taken into account the new metrics since they shifted last summer, Turcas told Real Asset Insight’s Richard Betts.

There are a lot of positive things of note and the alternative debt providers know that their moment is coming, notably because of the emerging need for refinancing. While ‘back in the day’ it was hard to compete with German or French banks offering good pricing for high LTV ratios, now you need a very low ratio in order to be charged 5-6% while a higher LTV will cost more like 10%.

“But at the end of the day, when you do the math on your business plans, it sounds attractive to talk to those people and a lot of refinancing is going to happen in the coming months or quarters.”

Another, theme is ESG and the increased clarity being provided by the EU taxonomy and EPCs. “This is something that is regulated and you can’t comply with labels that you just made up,” Turcas said. “EPCs do not lie and this is something that investors are assessing really methodically. There’s a strong green discipline in portfolios now,” he said. “A lot of pricing will be diluted in relation to those EPCs.”

Thirdly, urban zoning is getting tighter and tighter and cities are trying to preserve the mixed city which is destroying value and creating some panic.

“This is new and we have to adapt so I think the really positive thing is managers and real estate people are really flexible. The historic managers are rebalancing their large office footprints to life science, senior housing, social or intermediate housing and trying to get a flavour of what’s next,” Turcas said.

“Obviously, a lot of people are trying to do the recycling play, turning old stock into new or something else.”

However, he pointed out that the urban zoning regulations are “really painful” and it is not easy to convert old office stock into something alternative.

Please click on the video above to watch the full interview or listen to the podcast below.