Paragon SA is a real estate firm which provides investment services to private and public equity vehicles focused on real estate and real estate-related endeavors principally in Switzerland. Paragon works with investment partners to identify, asset manage, and operate properties. We are a one-stop shop with expertise in finance, leasing, insurance, redevelopment, construction and building operations.
Paragon also specializes in tenant representation, third party asset management, and brokerage in commercial real estate. Paragon executives are multi-lingual and multi-national and benefit from an international approach to corporate culture combined with a local presence and expertise in local markets. In particular, through the experience of its chief executive, Paragon SA is able to transfer some of the successful approaches pioneered in the US real estate market to a European context.
Paragon's key strengths lie in distressed opportunities, underperforming and undervalued assets and value creation opportunities. Investments include single assets, portfolios, joint-ventures and real estate development, as well as real estate-related loans and debt instruments. We canvas retail, logistics, office, industrial, as well as senior and student housing opportunities.
Note from the CEO
The year 2015 got off to a turbulent start.
On January 15th, The Swiss National Bank (SNB) decided to respond to the ECB’s decision to engage in its massive monetary easing policy by removing the artificial floor of 1.2 CHF to the Euro that had been in place since September 2011. This news was unexpected, as the President of the SNB had been on television some weeks earlier committing to medium term stability in terms of monetary policy and rates. The shock to the financial system was felt immediately and significantly. The exchange rate fell from 1.2 to 0.85 percent in the first hours and then rebounded to around parity later that day. Today the experts expect the Franc to stabilize between 1.0 and 1.1.
On a separate front, Switzerland has been adjusting to the death of banking secrecy that has been one of its pillars for so many years. The French, German, and Italians amongst others, have joined the USA in forcing Switzerland’s hand to abandon their secrecy and to abide by more common international transparency standards. The new regulatory environment became a reality in June 2014, when FATCA was implemented once and for all. This new banking environment has not led to a massive withdrawal of funds under management in Switzerland, as one might have expected (according to a recent Deloitte report AUM in 2014 increased by 25% from 2011 levels). However, most banks have seized on the moment to reduce their headcount significantly in Switzerland. This coincides with other large companies and NGOs also reducing their headcount in Switzerland due to the effect of the strong franc on salary costs.
Finally, the stability and predictability of the Swiss tax system has also come under attack recently. Whether we are speaking about the “forfait fiscal” or the harmonization of cantonal tax rates, there is more uncertainty than in the past, and it is incumbent on the authorities to stabilize this situation as quickly as possible.
What does all this mean for us?
While a strong Swiss Franc certainly hurts exports, and unpredictable tax policy does discourage foreign investment, and the lack of banking secrecy and “forfaits fiscaux” means less “pull” for UHNW (ultra-high-net worth) families, it is our opinion that Switzerland will continue to survive and prosper, but for slightly different reasons in the future. Foreign investors wishing to expose themselves to Europe without taking on currency risks may be more interested in investing in Switzerland in 2015.
Switzerland continues to create records and achievements in research, technology, biotech, nano-tech, micro-tech, and luxury goods, among other industries. The universities are rated amongst the very best in the world, and the quality of life is still in the top decile. The Swiss politicians have realized that they need to counter the strong franc and high salaries with lower taxes, so there will certainly be a harmonization of corporate income tax rates across the country at something in the region of 14% (expected in 2018) as opposed to the 24% we currently pay in Geneva today.
The above average level of security, health care, clean air, central European location, multi-lingual nature of Switzerland will continue to attract investors and families who want to live in what can only be considered as a wonderful place.
As Switzerland re-invents itself, the flight to quality will drive real estate investment fundamentals. In primary markets, the desire for secure income has seen commercial properties with long leases to high quality tenants become more expensive with prime yields well below 5.5%. We expect yields to remain low in core markets, however, the other sectors will weaken as we are beginning to see yields being pushed up and more opportunities coming to market.
These factors continue to pose challenges for the typical real estate traders, however, the value-add players can still find attractive opportunities in such markets. At Paragon SA, we search for “value” where the combination of seller circumstances and our expertise in asset management make a deal attractive and with less risk. As more money chases core assets that are stabilized, and banks becomes more averse to lending, we expect to find really good opportunities for those with available capital and an appetite to take advantage of opportunities in niche markets.