Prices of SCPIs, life insurance real estate funds… Is the end of the crisis near?

Prices of shares which fall, again and again, blocking of resales, uncertainties for certain families of SCPI, falling returns for the two other large families of real estate funds, around -7% in 2023 for OPCI and SCI, which are fond of life insurance savers… What is wrong with the once serene and successful land of real estate funds? Interview with Jean-Marc Coly, the president of Aspim, the association bringing together all the managers of SCPIs and other real estate funds.

Jean-Marc Coly, in March, new price reductions for SCPI shares were announced, at BNP Paribas Real Estate, Primonial and Amundi Immobilier. This follows the corrections already made in 2023. Should we expect further declines?

Jean-Marc Coly: We think we are pretty much at the end of these value adjustments. It is the strength of managers to draw consequences from the economic situation. Over the last two years, management companies have mainly demonstrated transparency and responsiveness. It was impossible to know the right level of adjustment from the start, because this requires knowing the level of real estate prices at the end of the crisis. However, it is important to move quickly because real estate, unlike the stock market, suffers from a problem of temporality: we are not in the moment. But during this period, spread over 2 years, people are worried. The adjustment of the values ​​was quite rapid, quite brutal. We are probably reaching the end of the evolution of rates, with a decline in prospect. Theoretically, now that we have passed the high point for rates, the adjustment of real estate values ​​will come to an end.

When should this SCPI price adjustment end?

J.M.C.: A priori between the start of this year and June 30. Afterwards [au second semestre 2024, NDLR] any remaining corrections should be less significant. And we must emphasize the great disparity in the adjustments observed! For example, SCPIs specializing in sectors such as health, old age or logistics are more resilient.

The adjustment of the values ​​was quite rapid, quite brutal

Are we really reaching the end of this decline? Some SCPIs have not yet published their reconstitution values ​​- evidence of the real value of the SCPI’s assets – at the end of 2023…

J.M.C.: Yes. We are the end of this cycle. Then, we will be as close as possible to realistic values. On the other hand, let’s not forget that what holds up well for SCPIs is the returns. With inflation and thanks to the work of the managers, the occupancy and distribution rates are up to what was announced, or even a little better.

When we face crises so little, we get used to them

Despite the reassuring speeches of the managers, whom you represent, do you understand why investors are worried? This succession of price reductions questions…

J.M.C.: We ended up getting used to it. When you face crises so little, you get used to them. We gradually see real estate as a market that cannot go down. We have somewhat forgotten to tell ourselves that there can be cycles. A real crisis in real estate ultimately happens once every 30 years. We have faced other upheavals more recently but not of this magnitude. When the crisis occurs, it is true that it is not pleasant but it is not that frequent. Afterwards, although the concern is legitimate, the reality is that only a small minority of investors ask to exit.

Let’s not kill the office

This crisis is due to soaring interest rates, as you say. But, concerning SCPI, OPCI and SCI, have the Covid-19 health crisis and the development of teleworking not also had a significant impact on office real estate?

J.M.C.: There is no single answer to this question. In a real estate portfolio, let’s not kill the office. Because the number of potential uses of these premises is immense: it ranges from the CAC company to the coworker. There will always be a use for office space! This does not mean that it does not change and evolve. An example: in the 1990s, Roissy was an incredible hub for offices. Then Seine-Saint-Denis took precedence in 1998 with the World Cup and the construction of the Stade de France. Then, Paris, which had previously lost space, regained its appeal. All this to say that the office market is evolving… but it still exists! Indeed, sometimes, we sometimes have to rehabilitate buildings: this requires work budgets but it is part of our business.

Price of SCPI shares falling, redemption capped… Storm warning for real estate funds

Do you fear withdrawals and mass resales? And how can we explain that some investors find themselves stuck, unable to resell their shares?

J.M.C.: Remember that there are several ways to invest in SCPI: directly or via life insurance, mainly. Around 20% of SCPIs are held via life insurance funds. And this mode of investment is the majority or even exclusive for OPCIs and SCIs. However, when you invest through life insurance, the liquidity problem does not exist. It is the insurers who ensure this liquidity [Le code des assurances oblige l’assureur restituer votre mise dans un dlai maximum de 2 mois suite votre demande, NDLR]. But be careful, even in life insurance, a majority of investors remain. Rather than paying fees, they prefer to maintain their investment over time and wait for the market to rise. The only cases of blockages concern direct ownership: if the SCPI does not have the necessary liquidity to allow this repurchase of shares, then this happens through the secondary market [trouver un autre investisseur particulier prt racheter, en simplifiant, NDLR] either the manager starts selling real estate and it then takes 5 to 6 months to find funds. It is normal that there is a long wait.

You are talking about a minority…

J.M.C.: These are 2 to 3% of the outstandings which are awaiting release: it is a lot but it remains measured, it is not a standard volume either. And once we have adjusted the share prices to the low point, there will no longer be too much interest out because the value of the share will be at the level of the value of the assets.

The only cases of blockages concern direct detention

Life insurance: SCPI, SCI… Still a good time to include real estate in your contract?

You were looking for sustained returns. But other investment families are seeing their rates rise. Real estate funds are no longer the only ones promising high performance…

J.M.C.: The SCPI and all unlisted real estate products [les fonds du type OPCI et SCI, NDLR]their risk premium is 200,300 basis points above long-term rates [donc 2 3% de rendement en plus que les taux des emprunts d’tat, par exemple l’OAT 10 ans navigue en mars autour de 2,8%, NDLR] and this in a very linear way, with in addition a little of the valuation of the price. This return is the great asset of real estate funds. We believe that after adjusting the values ​​the apparent return on the funds will be 5% or 6%. The collection will start again when individuals are certain that we have reached the low point. Real estate has a place in a portfolio, alongside bonds and stocks, much like private equity [investissement au capital de socits non cotes en bourse, NDLR]: having 10% 20% of your portfolio in real estate funds, depending on your age, is definitely a good thing.

Make an asset allocation by pooling risks!

So you invite individuals to wait until the end of 2024 to invest in SCPI?

J.M.C.: I would say to be ready to reinvest in the second half of the year when the right time is right. But be careful, you will have to keep the right reflexes in mind: make an asset allocation with several sectors of activity, possibly choose different managers, and then depending on your appetite go to SCPIs created more recently if you wish. But make an asset allocation by pooling risks! The more allocators there are in a fund, the more sectors there are in a fund, the more regular you will have a return, not necessarily the best but the most regular. Going for a high rate, even on SCPIs, is often the counterpart of a risk…

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