EUROPE - A French asset manager has entered the nascent Sharia-compliant property market, launching a collective property vehicle (OPCI) targeting investments in the Paris office market.
Alongside an unnamed Kuwait-based investment bank, La Française Asset Management launched the joint venture in late March, with the first purchase a €46m property in 5e Arrondissement currently occupied by France Telecom.
Discussing the launch with IP Real Estate, members of La Française's €7bn property team said they expected to add a second unit by the end of the year, with chief executive Patrick Rivière noting his satisfaction at being able to combine a Sharia-compliant investment approach with the country's transparent fund system.
Rivière added that the asset manager would look towards the Middle East for further expansion, having opened several offices outside France in recent years.
"Our focus for real estate is really on the big institutional clients, so sovereign funds and pension funds - which explains why the Middle East is an important area for development," he said.
Head of southern Europe and Middle East business development Jean-Philippe Besse stressed that its OCPI was the first to comply with Islamic investment regulations.
He said tenants would be selected as long as they complied with Sharia guidelines, with companies from certain business backgrounds automatically excluded.
"The second issue is the loan - we are talking of an operation with 50% leverage, and we have to find a Murabaha structure compatible with regulation for the OPCI," he said.
The company's head of real estate management Antonin Prade insisted that the tenant pool would not pose a problem within the Parisian market, saying all economic sectors were present in the French capital - with the public sector "completely" compatible with the restrictions.
Asked why the fund would be limiting itself to Paris offices, he said the market was both large and high in liquidity.
"It may be expensive at some point and [offer] competition for the best assets, but when you are a newcomer in the market, you need easy stories - which the Paris office market [is]," he said.
He noted that other cities - such as Lyon - could be attractive to investors once they were familiar with the French lease structures and economic conditions on the ground.
But he said that, at the moment, there was little interest, especially from Middle Eastern investors, for holdings outside the country's capital.
Prade was also optimistic the fund's only holding to date - located on Boulevard Saint Michel - would soon appreciate in value, despite the rent being comparatively low for the long-standing occupant.
"In a few years, maybe not at the end of the current lease, after refurbishments, we can have a prime property in an area with no supply," he said.