Lack of affordable financing for value-add real estate in France is holding the market back, according to Stephen Miles, managing director, EMEA capital markets at CBRE.
Lack of affordable financing for value-add real estate in France is holding the market back, according to Stephen Miles, managing director, EMEA capital markets at CBRE.
Miles noted that debt is readily available for 45-50% leverage, but that it is more difficult to obtain for investors interested in going up the risk curve.
He was speaking at PropertyEU's recent Europe & France Outlook Investment Briefing at the Paris office of law firm Taylor Wessing.
‘The potential pipeline for that type of value-add secondary assets requires a decent amount of leverage to generate appropriate returns. Debt in that segment is quite expensive and investors are being forced to go to non-traditional lenders for higher LTVs. That is holding back some of the liquidity in the market.’
LTV rates
Traditional lenders like German bank Helaba might be willing to raise LTV levels for select investors, Renaud Jézéquel, general manager of Helaba's French business told the audience. He warned, however, that there was ‘no clear answer’ to the question to what extent his bank would be prepared to raise LTV levels. ‘We are very focussed on asset type. There’s a big difference between new and outdated assets. Assets requiring a lot of capital expenditure can create interesting challenges but there are still fantastic deals to be made if investors can buy at the right price and if they have a strong property story.’
Asked whether Helaba would continue to provide financing should yields in France - and Paris in particular - continue to fall and rents remain flat, Jézéquel said the German bank Helaba was keen to expand its presence in the French market. ‘We will continue to finance and are selectively open. Helaba wants to expand its lending book in France and we think there’s still a lot of value in it.’
He noted, however, that new European regulations requiring lenders and insurers to hold greater capital buffers would affect the cost of capital across the board and have a significant impact on their willingness to lend. ‘Most lenders are lowering their return on equity,’ he said.
Preserving LTV levels at ‘reasonable’ levels is essential, added Benjamin Cartier-Bresson, head of Berlin-Hyp’s representative office in France. ‘We want to get repaid in 5.7 or 10 years. That is our sole goal. We need to assume that interest rates will be higher in five years’ time so the question facing borrowers is whether they can manage if property values are low.’
Commenting on the question whether finance was readily available for investors interested in going up the risk curve, Cartier Bresson argued that the best sponsors were able to raise debt for their property purchases. ‘We are where we need to be. There’s quite a lot of competition.’