Gecina invests €150m in value-add project in central Paris

French REIT Gecina has signed a preliminary agreement to acquire a 19,000 m2 building for redevelopment next to Gare de Lyon in Paris' 12th arrondissement.

The asset was acquired from the Klésia Group and is expected to represent a total investment of around €150 mln at delivery, reflecting a net yield on cost of around 6%, with an unleveraged internal rate of return of over 9%.

The building - Tour Van Gogh – previously housed the Mornay group headquarters but is now vacant and will be fully redeveloped, with delivery scheduled for mid-2018. It is located near the major train and metro station of Gare de Lyon, which will see its importance grow even more with the extension of line 14 of the Paris Metro, planned for 2019 to 2023. The district has a low vacancy rate of less than 4%.

Gecina has secured over €1.7 bn of new in vestments since the start of the year through the Sky 56, City 2, T1&B, PSA and Tour Van Gogh projects.

The company has recently unveiled a new value-add strategy focused on the acquisition of iconic buildings in need of repositioning or redevelopment. Last month, it bought two Paris assets from Canadian investor Ivanhoé Cambridge for €1.24 bn.

The transaction, which added 122,200 m2 of office space to Gecina’s portfolio, involved the 88,600 m2 T1 & B tower in the La Défense business district, which currently houses the global headquarters of Engie Group, formerly GDF Suez; a 33,600 m2 office complex at 75 Avenue de la Grande Armée, currently housing the historic headquarters of PSA Group in Paris’s Central Business District.

These deals are in line with Gecina's ambitious growth strategy focused on offices aimed at consolidating the firm’s leading position for offices in Paris.

‘We are planning to focus on larger offices in the city centre of Paris and in mature office districts near the capital city, as well as on the Part Dieu district of Lyon,’ CEO Philippe Depoux recently told PropertyEU. 'We plan to be more selective than ever regarding locations,’ Depoux noted, added that the company will consider investments primarily in Paris’ city centre, La Défense, Boulogne, Issy-les-Moulineaux, Neuilly-sur-Seine, as well as the Part Dieu district in Lyon.

Depoux: ‘The market is incredibly hot. There is huge competition for core buildings, but we are willing to take on some letting risk,’ Depoux said.

Gecina’s new investment strategy reflects a strategic change in the group’s shareholding structure, which last year saw the end of a 10-year ownership by Spanish investor Metrovacesa. The Spanish investor sold its €1.5 bn stake in the French firm to four major international shareholders; Norway's Norges Bank, France's Credit Agricole Assurances, US investor Blackstone and Canada's Ivanhoe Cambridge. Metrovacesa sold 16.8 million Gecina shares - its entire stake - at €92 a share.

Blackstone and Ivanhoe Cambridge already held 23.03% of Gecina after agreeing on a debt-for-equity swap earlier this year with former Gecina CEO Joaquin Rivero and ally Bautista Soler. They took a further 6.92% in the company, bringing the total holding to 29.87% - just under the 30% required by law to launch a full bid. Credit Agricole Assurances already had an 8.56% stake and brought its stake to 13.4%. Norges Bank - which manages the giant Norges Pension Fund Global – acquired a 9% stake, bringing the total holding to 9.7%.