Investors eye fire sale potential of €90b French open-ended real estate market

It may not be a topic being openly discussed at Expo, but some managers with French real estate expertise are speculating over the fate of a large industry with the potential for billions in euros of forced sales.

The market capitalisation of French open-ended real estate funds or products for French savers stands at approximately €90 bn, according to experts.

With vast amounts having been channelled into them during the QE phase since 2015, those inflows have since expanded.

Given such large amounts of dry powder, some French open-ended funds had to invest quickly in order to deliver the promised distribution - often a yield of 4%.

Some of these vehicles, including the largest by AUM, had French institutional investors alongside traditional savers.

Market participants point out that since the end of December 2022 and early 2023, the magnitude of rising interest rates led to some institutional investors seeking redemptions as they had large tickets compared to traditional savers.

Therefore, some vehicles began to struggle with liquidity issues, and have to sell assets, specifically offices in their portfolios. The large vehicles have a high exposure to offices compared to smaller ones at a time when the market for offices was entering a downward adjustment.

One expert who preferred to remain anonymous, said: ‘Some funds are clearly vulnerable. Given the fall in valuation, they have to review the share price of the funds. Usually they have “room for manoeuvre” of plus or minus 10% to adjust the price. In the current environment, meaning since July, key names decreased the share price over the 10%.’

So far, savers have not withdrawn money.

But the source said: ‘However, there is a fear of a kind of bank run, even though this is not the main scenario. In order to face redemptions, those French open-ended funds are selling assets with a strong “discount”… so far so good, but we might hear that specific vehicles still face issues with no ability to face redemptions if they sell assets at a really low price.’

Some vehicles have developed liquidity tools such as gates and side pockets, and there are also vehicles which are not facing any issues. ‘But they are afraid of a domino effect in the future,’ the source said.


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