Paragon enjoyed a successful 2022 having completed a major reconstruction project in Bex and fully leasing the property, selling a property in Meyrin, completing a first private lending deal in Montreal, commencing a storage building construction project in Chavannes, and getting approval for a significant residential development in Chambesy among other notable achievements. Our pipeline is healthy and we are expecting a productive start to the new year despite the complicated global macro economic and political environment.
As we have been reminded incessantly by the media, inflation has finally arrived, and while Switzerland trails behind North America and Europe, it still shows signs of continued inflationary pressures. Interest rate curves indicate a recession is on the horizon, but our feeling is that the fed and the national banks still need to address inflation and will continue to maintain higher interest rates than we have become accustomed to over the last few years.
Amid the uncertainties presented by the war in Ukraine, the Covid virus still lingering, as well as the consequences of a significant drop in the stock markets, the valuations for institutional portfolios are under pressure. The institutional players who are obliged to maintain certain ratios of debt to value (33% for residential funds and 40%-50% for commercial funds) might be forced to sell off assets to respect legislature if valuations continue to decrease.
Moreover, the increased ESG requirements will also contribute to put pressure on owners of portfolios to divest of secondary assets and those properties requiring major capital expenditures to be brought up to modern standards and norms. These drivers could lead to interesting opportunities for investors like Paragon who seek to add value to distressed assets when possible. Even though interest rates have doubled or tripled, they remain attractive in Switzerland with 10-year rates currently below 2.8% and we feel optimistic that we can create long term value even at these rates.
Diversification remains one of our key objectives for 2023. We want to take advantage of the strong Swiss Franc in order to invest in countries like the UK, Canada, France, Belgium and the Netherlands, or others if the opportunity presents itself. More sustained inflation in those countries and a faster knee-jerk reaction by their national banks means it is possible to find opportunities outside of Switzerland where our strong Swiss franc together with our value-add strategy and expertise may mean we can capitalize on the volatile environment.
Our sister company, Piretti, is thriving thanks to improved management and a sustained demand for construction companies that offer peace of mind and quality construction to clients. We are building our first storage building in Chavannes from A-Z using wood, heating pumps, solar panels, and state of the art design with the aim to build an ESG compliant product that sets the standards in the local market.
Investing significantly to bring the old Coop factory in Bex up to modern norms and standards has been a source of pride for our team as we are fully committed to finding opportunities where we can contribute to improving the environment in the communities where we invest. We understand that for us to continue to thrive, our work needs to have meaning and purpose, and when we have that in abundance, there is nothing that will stop us from delivering excellent results and performance. It is our goal that our people feel a sense of satisfaction with a work-life balance that is sustainable and attractive over the medium to long term.
Our leadership team has been reinforced with the addition of Yan Grandjean and the promotion of Arthur de Rivoire, and we are excited about the potential we have to grow and achieve our goals in 2023. The often-quoted Darwin once said it’s those most able to adapt to change that survive, so we are doing our maximum to adapt to the constantly changing environment in which we operate and we are confident that we have the team, the spirit, and the tools to continue to offer our investors the above market performance they have become accustomed to.
Mike Wolfson
