Real estate, alternative real assets and other diversions

Euro property investor – April 2018 The French Investment and Property Market

Investor's Notebook

I have been active in the European real estate markets for over 30 years with a focus on the more liquid north-western countries. I have worked for agencies (Knight Frank and CBRE), an accountancy practice (Touche Ross & Co) and investment banks Lazard Brothers and Citigroup.

Nearly 14 years ago I set up Rynda Property Investors as my own FCA regulated real estate investment management house. I have enjoyed working with incredibly loyal and supportive clients and very committed colleagues.

Rynda is primarily a real estate operating partner platform for global capital. Rynda actively sources real estate opportunities in Benelux, Germany, France and the UK. Our clients invest across the risk spectrum and want advice and asset management from locally based teams of committed individuals who are trusted experts in their relevant markets.

Rynda always seeks to back its judgement by co-investing with our clients.

France – Investment Market

The majority of Rynda Group employees work in France and over the last 14 years the country has been a successful investment location for a range of our clients along the risk spectrum and across the breath of commercial and residential uses.

However, all has not been well in the last two or three years.

Over the first decade of Rynda’s assignments in France a deep understanding of the market developed with not only a knowledge of where assets would trade but also a strong predictability of an asset’s net operating income and its likelihood of  retaining and attracting tenants. This level of knowledge was built from employees embedded in their respective real estate markets and from practical experience of managing over a hundred assets of varying quality and type.

From mid-2016, and escalating in scale post the election of President Macron, our knowledge and experience seems to have become out of step with the market pricing Whereas previously our underwriting would be within a 5-10% margin of where assets traded suddenly we were finding our judgement was 20-25% awry. We, of course, subsequently analysed our assumptions and reflected on our judgements and in all but a few instances reconfirmed our initial net operating income calculations and exit capitalisation rates as our earnest view. We also retain our view that French tenant demand is still generally problematic and that the tax burden to investors and a rising interest rate environment should be reflected into greater underwriting caution.

So what have we concluded?

In essence the real estate fundamentals have not materially changed for the positive but pricing has got out of quilter due to;

  • Significant demand from the weight of money raised by retail funds by French investment managers
  • A fundamental over-exuberance of the short term economic gains and structural reforms benefits to the French economy arising from the election of President Macron and
  • A tendency for French institutions to disproportionately focus on their domestic market that amplifies the impact of the success of domestic capital arising.

As such we remain very cautious as some of these drivers might soon start to unwind. Could the trigger of that unwind be the striking chaos on the rails and in the air, that starts the deflation of the Macron bubble?

Investor's Notebook

About Michael Walton

Michael Walton

Michael Walton founded Rynda Property Investors LLP - an independent FCA regulated real estate investment house - in September 2005. Michael is a Chartered Surveyor with over 30 years’ industry experience. His skill-sets include structuring real estate joint ventures and funds in Europe for institutional, shari’ah and high net worth investors and the subsequent deployment of capital. Rynda establishes investment products across the risk spectrum and via local teams proactively manages the assets acquired to maximise net operating incomes and investment performance. Rynda always seeks to back its judgement by co-investing with its clients. Though focusing primarily on Western Europe, Michael is also familiar with both Scandinavian and Middle Eastern markets. Prior to setting up Rynda, he was a Managing Director at Citigroup Property Investors (1998-2005) where he was responsible for all investment strategies throughout Europe. Michael has previously worked at Lazard Brothers & Co. Ltd (1994-1998) and Touche Ross (1992-1994) and holds an MBA from Cass Business School and an MA from the University of Cambridge.

Articles by Michael Walton

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