American Vultures Are Migrating To France

They're buying up cheap properties--and expecting fat returns

When Bankers Trust Co.'s Donald Bryden first surveyed the moribund French real estate market three years ago, he saw an opportunity. He knew that if he could persuade red-ink-drenched French banks and insurance companies to unload their portfolios of office buildings and apartment complexes at fire-sale prices, he could find American buyers who would smell the kinds of profits they made in the U.S. in the aftermath of the savings-and-loan crisis. Sure enough: Bryden has two deals worth $323 million under his belt.

But a few bargain hunters from across the Atlantic won't be enough to turn around France's real estate market. The Americans think they can make a 20% return on their investments, based on their experience back home after Resolution Trust Corp. unwound the S&Ls' holdings. So far, though, their confidence hasn't caught on among domestic French investors, who haven't made a move in years. Nor will the foreign experiments cure the balance sheets of French banks and insurers, groaning under an estimated $40 billion to $60 billion worth of nonperforming loans.

SHOPPING IN PARIS. Bryden, managing director of Bankers Trust France, did his latest deal with Goldman, Sachs & Co. Through its Whitehall Fund, Goldman took a portfolio of distressed loans with a book value of $149 million off the hands of troubled Compagnie de Suez. Earlier in the year, Bryden brokered a deal involving a consortium of U.S. companies, including Lehman Brothers, Cargill, and LaSalle Partners, that bought a French portfolio with a face value of $174 million from Britain's Barclays Bank PLC. In both cases, analysts estimated that the portfolios were sold at half their book value.

In other American forays into France, Philip Morris Capital Corp. recently signed a $600 million deal with Compagnie Generale des Eaux to finance a new office complex in the Paris business district of La Defense. Philip Morris says high occupancy rates at La Defense justify the expense. Morgan Stanley & Co. is also reported to be shopping around Paris for portfolios of residential and commercial property.

GUN-SHY. But investing in French real estate remains a risky proposition. Pricing property now is nearly impossible, since so few transactions take place. And a crash could ensue if large chunks of property come on the market and sell for low prices or not at all. For example, by the end of this year, the market will have to absorb the huge portfolio owned by the restructured Cogedim, the property development unit of Compagnie Financiere de Paribas. And industry observers will carefully watch the widely expected sale of $8 billion worth of real estate and loans formerly held by the ailing Credit Lyonnais.

The market isn't likely to recover until gun-shy French investors come back into real estate. That, analysts say, can't be taken for granted. "I'm not convinced that the French are going to do a great deal of buying," says one London-based property analyst for an international bank.

With the U.S. real estate market close to full recovery and unlikely to yield high returns, it's not surprising that some Americans are wagering on France. But so far, the handful of bold investors is playing on a very lonely field.

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