Global capital wins in France as home players quit the field

A dip in 2013 deal volumes belies foreign investors’ keen interest in France, reports Jane Roberts

France was the only western European country where investment volumes fell last year. The 7% decline, to €18.4bn, was led by the Paris office market, where levels fell 13%, according to Real Capital Analytics. Overall, including other sectors, Paris deal volumes fell 15%, to €12.2bn, while Q4 2013 was the seventh of eight quarterly falls in two years. CBRE points out that this was still enough to keep Paris in second place among Europe’s top cities for investment and puts the 2013 fall at 8%, compared with 2012.

Part of the decline was due to domestic institutions investing less, which could be a consequence of their gathering interest in cross-border investment as much as dissatisfaction with their country’s relatively poor economic performance. But as the French home crowd looks abroad, global investors have been moving in (see graph). Two jumbo Paris acquisitions have been agreed already in Q1 2014 by US and Middle Eastern investors, helping Paris deal volumes to overtake Q4 2013 levels by February.

Savills’ continental Europe CEO Borja Sierra says winning bidder Olayan Group, a Saudi investor fronted by Chelsfield, picked up “Paris’s primest portfolio to be sold in the past five years” when it paid Risanamento €1.2bn for eight mixed-use properties. The distressed Italian property company, headed by Luigi Zunino but controlled by its banks, sold the assets in late February to pay back creditor banks. The sale was handled by Italian boutique bank Leonardo.

The assets include Valentino’s flagship at 17-19 Avenue Montaigne, Dolce & Gabbana’s in the same street and Sephora’s at 21-23 Boulevard Haussmann. There were several disappointed overseas buyers from the US, as well at Ponte Gadea, the Spanish company of Inditex co-founder Amancio Ortega, which bought Devonshire House in Mayfair last December. Zunino had partnered with Tom Barrack of US private equity firm Colony Capital to try to bid.

US investor Lone Star, meanwhile, pulled off a coup by extricating the 1.9m sq ft Coeur Défense office complex from the safeguard process, a French legal status that protects bankrupt companies, which kept the asset off the market and safe from enforcement. Lone Star is paying about €1.3bn, 40% less than the €2.1bn a Lehman Brothers’ fund paid just before the bank’s collapse.

Overseas investors also bid for Gecina’s €700m sale of the Beaugrenelle mall in France’s largest single shopping centre deal – but were beaten by domestic investors Apsys, Groupe Madar and Société Financière Saint-James. The underbidders included SAFE, China’s State Administration of Foreign Exchange, Hammerson, Rockspring, Union Investment and Altarea. Gecina said the sale, reflecting a 4.6% yield, gave it firepower to invest in “Paris office assets with value creation potential”.