Philippe Depoux, CEO at La Française Real Estate Managers.
Urban expansion, demography, de-globalisation and the ensuing fragmentation, are some of the trends Philippe Depoux, CEO at La Française Real Estate Managers, identifies for the real estate sector. In this interview, Philippe Depoux also admits that in 2023 there will be a decrease in investment volume compared to 2022, i.e. less than 1.4 billion euros across Europe.
Could you please describe your company – its history and its activities?
La Française Real Estate Managers (REM) is one of the four asset management companies belonging to La Française Group. For almost fifty years, it has specialised in real estate asset management and currently manages more than EUR 32 billion (31/12/2022) in assets across Europe. As the leading management company of collective real estate investment vehicles in France, it offers a wide range of funds to private investors as well as a broad array of tailor-made solutions to institutional investors mainly on Core/Core+ strategies but also on Value Added and, more recently, Opportunistic strategies. The management company has developed internationally over the past ten years by creating a real estate platform and opening investment and asset management centres in London, Frankfurt and – most recently – Munich. It leverages its international infrastructure to source assets from across Europe for its French and international clients, in particular its Asian clients. Moreover, after noting a significant increase in demand from Asian investors, particularly for European real estate, La Française REM opened a new office in Singapore last summer, following the opening of the office in Seoul in 2016.
What are your main investment criteria?
A new era is dawning. The return of inflation sounded the death knell for accommodating monetary policies and led to a rise in the cost of financing. At present, it remains difficult to get a read on the financial environment. In periods of uncertainty, we stress the importance of anchoring our investment strategies on long and structural trends for the real estate market:
The fight against climate change is not only a key commitment for us; it has long been one of our convictions. However, it is also an increasingly important requirement for the regulator and users, with an increasingly tangible impact on asset values.
Urban expansion is also a powerful trend. In this context, centrality and accessibility are – more than ever – key factors for companies when selecting sites, and they favour locations close to public transport hubs.
Demography is a long-term structural trend. On the one hand, there is additional demand for healthcare real estate and managed residential because of the ageing of the population and the reduction in the size of households. On the other hand, the retirement of baby boomers is fuelling a shortage of workers. Therefore, this trend heightens the importance of talent-retention for companies and the need to offer their employees quality workspaces.
De-globalisation and the ensuing fragmentation should lead to a divergence in the economic trajectories of different countries, thus reinforcing the need for geographic diversification. Self-sufficiency in terms of national security, logically implies the vast relocation of supply chains. The necessary development of the local production apparatus will support the demand for industrial premises, both in terms of activity and storage.
In 2023, La Française REM will pursue its strategy of geographic and asset-type diversification by investing in assets with a defensive profile, where performance is buoyed by these trends. It will continue to invest in large cities where land is scarce. Examples of such “demographic assets” include healthcare real estate or traditional and managed residential. It will also invest in light industrial properties and storage premises in dense urban areas.
What are your target markets and your diversification strategy?
With the end of low-interest rates, the rental yield should be the main driver in terms of real estate asset performance. We will seek to generate growth in our rental income by favouring (i) assets whose rents are truly correlated to inflation, such as hotels, (ii) market segments where demand exceeds supply, (iii) the development of the sustainable characteristics of our assets to meet new uses or new environmental standards.
Where is La Française REM situated on the European and global market in terms of how attractive its investments are?
La Française is a major player in the European real estate market through its real estate platform with investment and asset management teams in Paris, London and Frankfurt. In this way, it covers the French, German, Irish, Belgian, Luxembourg, Dutch and United Kingdom real estate markets. 10% of our assets under management are located outside of France, with Germany being at the fore.
With EUR 1 billion committed in 2022, the market for managed assets grew by 91% over one year. How do you explain this trend?
Serviced assets offer a defensive profile. They offer diversification opportunities for traditional real estate portfolios. In fact, alternative assets, including serviced housing and healthcare assets, are decor-related to economic cycles, and demand is based on the structural trends that we just discussed. In addition to serviced assets, healthcare real estate also offers an attractive risk-return ratio, supported by the ageing of the population and the proliferation of chronic pathologies. Faced with this growing demand, supply remains insufficient, thus widening the inequalities a little more every day.
Economists are very cautious for 2023 with inflation peaking in Europe and monetary policy tightening in Q1 2023. Are you going to taper your investment ambitions for 2023?
Indeed, due to the difficult economic climate, coupled with the significant ebbing of the leverage effect on the back of hikes in financing rates, lower expected fundraising means that we must manage the pace of our investments. We expect a slight decline in investment volume compared to 2022, i.e. less than EUR 1.4 billion across Europe. However, we anticipate more investments on behalf of institutional investors.
What role does ESG play in your business today? How do you intend to fight greenwashing?
ESG criteria are taken into account during each phase of the asset life cycle by all of our teams. During the selection phase, ESG due diligence is carried out in parallel with technical, legal and financial due diligence. Action plans are drawn up and our asset managers are responsible for implementing them. Fund managers include the costs of improving environmental performance in their business plans.
We fight “greenwashing” by establishing precise roadmaps for all of our stakeholders (internal and external). Everyone knows what to do and we monitor progress. But above all, we are transparent. We publish annual reports in which we set out in detail our engagements, our actions and the progress made.
Some experts say you need to consider the carbon footprint of an asset over its lifetime. How do you intend to reduce your operational and incorporated emissions?
Our sustainable approach is based on compliance with the international objectives of the Paris Agreement. With regard to the concerned funds, we have defined an objective: the alignment of average emissions linked to the operation of our assets with decarbonisation trajectories at 1.5 °C. It is important to note that in order to achieve these objectives, we depend on the active cooperation of the occupants of our buildings. They are fully aware of our strategy. We have also drafted a sustainable construction charter which sets minimum standards to be attained for construction or major restructuring operations. For example, we require a Life Cycle Assessment for all these operations, which gives us an extensive view of the embodied carbon of our assets.