In an interview, Sebastian Hoepffner, investment manager at Bouygues Immobilier discusses about his role in the real-estate industry.

What are your responsibilities as an investment manager at your organization?

The company I work for is Bouygues Immobilier, a subsidiary of Bouygues SA, a company listed on the French CAC40. We are a real estate development company and we mainly build houses and condos.

I am working in the commercial real estate department, specializing in offices, hospitality and retail.

Our mission, as investment managers, is to identify and source obsolete office buildings, mainly in the Greater Paris region, to refurbish them and resell them within a short period of time.

We aim at regenerating office buildings through a significant CAPEX campaign providing them with grade-A specifications and green certifications such as BREEM or LEED (minimum very good or excellent).

Nowadays, things are shifting quite spectacularly, as office buildings are less and less sought after by institutional investors. We are currently restructuring internally and our focus is moving toward transforming vacant office buildings into residential units or serviced apartments (co-living, student housing or senior housing).

Even though our focus has changed, my job remains more or less the same: identifying office buildings and create a plan for refurbishment with the coordination of an architect, the local authorities and specialized advisors. I am charged with establishing the business plan and verifying its feasibility.

My mission ends when we buy the building – then it is passed to our asset management department.

What are some of the challenges and trends that you see in today’s investment management space?

Within the current economic climate, it has become very difficult to price assets. The way the FED and ECB have continuously increased key rates has created a new paradigm where nobody have any idea where to place yields.

It has led to a complete standstill as pricing has become difficult – even for valuation experts – and financing terms have hardened significantly.

Therefore our business, at least for office building, has stopped. We are now focusing on transforming assets into serviced apartments as the Paris region lacks residential units. However this new focus does not come without challenges. We are faced with two main difficulties:

a. Buying office buildings at very low price as exit prices are lower for residential than for office use (at the moment, but this will soon shift)

b. Convincing local authorities to change their land regulations to accommodate residential uses when only offices were authorized. This is far from easy as transforming office into residential means less tax for the city hall and an obligation to create infrastructures to accommodate this new population (schools, gyms, farmers market, etc…)

Over the past decade, what significant changes have you observed in the real estate investment landscape? How have these changes impacted your investment strategies?

After the GFC of 2008/2009, the commercial real estate market was a complete wreck. Assets were trading as very high yields (7-8 percent for core office buildings). Then the ECB began its ‘quantitative easing’ strategy, which lasted more than originally anticipated.

With this incredible liquidity influx in the markets, the real estate sector beneficiated from very cheap financing, and buying real estate began to interest many investment firms. With more and more players on the market with unparalleled fundraising, assets were trading at lower and lower yields which, eventually, created a kind of bubble (with a peak at 2,75 percent for the office prime yield in Paris).

Real estate developers, such as Bouygues Immobilier, built numerous office buildings even in B+ locations, where rental demand was not as strong. These buildings, sold to institutional investors are now deserted and we have 10 to 20 percent of our real estate stock that is ripe for transformation.

To summarize, we have been building office assets for the past 10 years with little to no consideration for the product (location, specifications, tenant grade, etc .) as investors were lining up to buy newly developed assets at record prices.

"Investment management is a wonderful job that can be summarized in two words: resilience and thoroughness"

Things slightly changed with the ESG policies rising within investment companies. Developers had to adjust the way they were building office assets (to comply with the EU Taxonomy, or article 8/9 of SFDR, or just to benefit from a certification such as BREEAM or LEED). Our construction methodology had to adapt.

In 2023, we are not even considering building office assets anymore, even if the contemplated product is 100 percent ESG compliant as we fear our exit price will not be as high as before as investors have difficulties pricing assets and financing is more and more expensive.

What advice would you give to young professionals who are interested in pursuing a career in investment management?

Investment management is a wonderful job that can be summarized in two words: resilience and thoroughness.

Investment managers are constantly shifting from one project to another, and it is mandatory to have a good methodology in order not to miss and element. As we are in the spotlight, we must take responsibility for our underwriting and it is easy to make mistakes when we are juggling 15 projects at the same time. Therefore, being thorough is of the utmost importance.

Furthermore, we are working on acquisition projects all day, and only 1 out of 100 can be materialized. Resilience is very important to remain unaffected when a project is suddenly killed for any sort of reason.

Author’s Bio

I have a Master’s Degree in Business Law (5 years within multiple universities Paris 11, Paris 2 (Assas) and in Leicester in the UK) and I completed my education with another Master’s Degree in Management and Finance at Dauphine University.

I started working in 2015 as a valuer at JLL. My job was to provide valuation reports and guidance to institutional investors.

In 2018, I moved to Cushman & Wakefield as a senior analyst, working in the investment brokerage department. My job was to write pitch, teaser and investment memorandum to support our senior brokers.

In 2021, I joined Paref as an investment manager, a subsidiary of Fosun Group (a Chinese conglomerate). It is an investment management firm with around €3BN AUM throughout Europe. I stayed around 1 year before being poached by Bouygues Immobilier. During this time I have the opportunity to do acquisition for an open-ended fund that was investing in Poland.

Ever since summer 2022, I work at Bouygues Immobilier, where my main mission is to buy obsolete office buildings, either to regenerate them, or to transform them into hotels, or serviced apartments.