December 09, 2005
By Marshall Taylor, European Correspondent, Commercial Property News

Orion Capital Managers of Paris likes what the REIT structure has done for French property markets. SIICs, les Societies d'Investissements Immobiliers Cotees, the French version of the REIT, have become aggressive buyers, obliging Orion, an active seller.

"We recently sold €500 million of assets in our first property fund, including two major transactions totaling EUR400 million, to publicly traded SIICs in a growth mode," Van Stults, managing director of Orion, told CPN. "We sold a €100 million portfolio of shopping centers and shares in a listed French property company that we took private for €300 million to SIICS.

The firm can realize a tax benefit in selling to SIICs, Stults noted. "French REITS also are trading at premiums and are looking to get bigger, that's why we want to sell to them." He noted that the SIIC drive to expand has been encouraged by a very attractive conversion cost for French property companies--17 percent tax on implied capital gains at the time of conversion.

"With no double taxation of earnings in the REIT structure, it creates a value uplift and makes SIICs very competitive, and bigger, buyers," Van Stults said. "Property companies have become larger and more stable as REITs."

For buyers, there is more competition across the board for income producing property in Europe, Stults said. "In some cities we've seen cap rates compress by 100 to 150 basis points in just 18 months," he pointed out, "and like in America, the markets are still very much debt driven. Recent German residential deals have gone at 90 percent loan to value and some banks offer 85 percent LTVs.

"Today shopping centers in southern Europe are getting 10 to 15 strong offers," he said, "and recently I saw an office building in Paris get 30 bids." Orion has been buying office, retail and mixed-use buildings in Italy, Spain France and Sweden for its second investment fund.

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