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- The Growing Connection Between PropTech and Property Investing
Property owners are experts in the problems that PropTech is meant to solve. Because of that, many PropTech investors have a real estate background. Most of the venture capital PropTech investment firms are either led by former property executives or have major property companies as LPs or board members. This gives them a deep understanding of what kinds of technology the property industry is able (or willing) to adopt. It also gives startups another reason to take their investment capital. Which company wouldn’t want introductions with some of their biggest potential clients? But now we are starting to see a different type of connection between buying real estate and investing in PropTech. Property companies are now increasingly investing in technology, and PropTech VCs are starting their own property investing arms. PGIM Real Estate (pronounced P-Jim) is the real estate investment management business of PGIM, the principal asset management business of Prudential Financial, Inc. They have been investing in real estate for over 70 years and currently have around $210 billion in assets under management. Their age, size, and corporate connection do not make them a typical candidate to invest in PropTech. But that is exactly what they are doing. PGIM Real Estate recently announced the launch of RealAssetX, an innovation lab that includes partnering with PropTech VC Taronga Ventures as well as a host of major Universities around the world and through these strategic partnerships, it w ill research, develop, and invest in technology in the real asset industry. There are a few very different reasons for a property company to invest in technology. One is to make money on the investment. Technology investing is risky, but when done right, it can result in massive returns on capital. The other reason is to help find technology that can be deployed on their portfolios to make them more profitable. When asked if the research produced by RealAssetX will be proprietary or public, Cathy Marcus, co-CEO and global chief operating officer of PGIM Real Estate, said, “Some solutions RealAssetX creates will only be applicable to PGIM Real Estate because we will be solving for a problem specific to our business. In other cases, we will build technology that can be leveraged by our entire industry, whether this be in areas of decarbonization, climate change more broadly, or shifting demands on real estate investments.” So PGIM Real Estate’s RealAssetX is an initiative that will hopefully find ways that “artificial intelligence and deep tech” can help solve some of the property industry’s problems with help from leading research departments at the University of Chicago, University College London, University of Singapore, and University of New South Wales. When deciding which issues to focus its attention on, “RealAssetX will work closely with its strategic partners to identify key areas of research through various channels such as PGIM Real Estate, the Universities, VC partnerships, and technology companies and prioritize research based on collective feedback.”
- Demand Rises For Tokenized Green Finance
The COP28 conference offers a real opportunity to rethink how we look at green finance solutions, Atlas Capital Team’s Chief Economist Nouriel Roubini and CEO Reza Bundy recently wrote. To reach a net-zero world economy, the world will have to “mobilize capital at scale,” they argue. To that end, “We must draw on the global savings of individual investors as well as institutions such as pension funds, insurers, and sovereign funds.” Interestingly, digital tokenization is how they expect to reach this potentially enormous pool of individual investors. Tokenization is converting ownership or rights to real-world assets (RWA) into digital tokens that can be sold to individuals, institutions, and governments. Imagine buying a one-millionth ownership share of the Empire State Building in the form of a single token, for instance. Tokens are typically entered, tracked, and traded on a digital ledger, often a public blockchain. The basic idea is to create liquidity for things that aren’t themselves liquid. Roubini, a co-founder of Atlas Capital, is still viewed in many circles—rightly or wrongly—as a fervid blockchain skeptic; but that’s a story for another day. The potential for tokenization is vast. According to a 2022 Boston Consulting Group report’s authors, the total size of illiquid asset tokenization globally could reach $16 trillion by 2030. Anything can be tokenized, including private debt, small- and midsize-enterprise revenues and physical art, they add. The authors also propose broad asset groups that can be tokenized, including green real estate investment trusts centered in climate-resilient locales, and green commodities like “soy, wheat, copper, rare-earth elements, cobalt, lithium, and so forth.” This notion that public plus institutional investment won’t avert ecological disaster themselves—that what’s needed is a of democratization of finance—is beguiling, but it raises some questions. First, there may not be enough sound green projects out there to tokenize. Second, just because something is tokenized doesn’t mean global investors will invest in it. Third, sovereign governments will need to support such efforts with enabling legislation and regulations.
- CRE Investors and Tenants Want Sustainability. Making it Happen is Tough
The built environment accounts for approximately 42% of annual global CO2 emissions. As a result, the commercial real estate sector is focusing on ways to reduce that greenhouse gas output. But “The Sustainability Imperative: The Future of Real Estate Investment” revealed a dichotomy that is taking place in reducing environmental impacts. While CRE occupiers and investors understand the importance of sustainability, getting from here to there is proving to be a challenge. The report, commissioned by the Bryan, Cave, Leighton, Paiser law firm, polled more than 700 real estate investors and corporate tenants throughout the United States, Europe, the Middle East and Asia for responses. Investors said that by 2030, more than half of their property portfolios would be CRE assets with unknown, poor or average sustainability performance. Furthermore, 74% of the investors said “a major cultural change” will be necessary for their firm to place sustainable buildings as an essential part of their investment strategies. On the occupier side, 56% of organizations have agreed to sustainability screening criteria applied to all commercial property rental decisions. In comparison, 48% currently have sustainability as a standing item on their leadership meeting agendas. Meanwhile, 43% of companies have leadership support in prioritizing sustainability, while 38% acknowledged having specific, measurable sustainability goals. Overall, sustainability factors rank fourth for investors when making decisions and the third most crucial factor for occupiers making rental decisions. What is causing this gap between knowledge and action? The research identified three barriers to real estate investment: A lack of consensus, like specific definitions, certification and data A requirement for organizational transformation and cultural change The difficulty in retrofitting older buildings to meet modern sustainability standards There is also the cost involved. The research noted that “the question of who bears the cost” of improving CRE sustainability is challenging. Governments can only cover so much, and upgrades are expensive. Still, the research did note that almost all the corporate occupiers questioned indicated they consider sustainability when making rental decisions. Meanwhile, three-quarters of investors said that a “green premium” will be a primary factor in determining real estate values within the next five years.
- The Trends Shaping European Real Estate
As we are seeing with almost every other industry worldwide, the Commercial Real Estate (CRE) industry is being revolutionised by change, with no area immune. The global real estate market has seen a tremendous shift; the green transition, growing urban populations, as well as demographic and technological changes - all creating fresh opportunities for investors in both traditional and emerging asset classes. Big data and data analytics have transformed real estate by enabling businesses to gain valuable insights into customer behaviour, preferences, and trends. The industry puts its best foot forward by utilizing multiple data science functions, creating valuable advantages such as risk mitigation, improvement of stakeholder engagement, accurate valuations, better market strategies, data-driven insurance and AI support in the decision-making process. In the modern world, property valuations based on data science are changing the game. With the help of data science models, investors can make informed decisions based on high-quality data and insight. These models can combine data from hundreds, if not thousands, of sources to produce accurate valuation forecasts that can optimise investment and the development process. Despite the excitement of new opportunities, CRE has faced some challenges in recent years that have softened demand while raising operating and financing costs. Higher interest rates, an economic slowdown, the hybrid work environment, a tight labour market and more are all contributing to the pace of change that shows no signs of easing despite economic headwinds. In the current real estate market, the challenge is more on the supply side: the market is in need of actual project availability in all sectors. Due to the complex web of legislation and tax issues in many countries, these projects often need more time to become available to the market. Yet, the demand on the investment side is still robust; the money is available, and investors are now well aware of the fact that yield expectations need to be realistic.
- Boston skyscraper named world’s biggest ‘Passive House’ office
A new Boston skyscraper has a climate-friendly claim to fame. Last week, it became the largest office space in the world certified to the extremely energy-efficient “Passive House” standards — and the first skyscraper in the U.S. to earn the label. The 812,000-square-foot area for offices at the Winthrop Center, a mixed-use commercial and residential building, requires significantly less energy than similar spaces. Comparable buildings in Boston consume 150% more energy than Winthrop Center’s office space, according to the developer Millennium Partners. To achieve Passive House performance, the design utilizes high-performing insulation, triple-pane windows and other construction techniques that improve airtightness and minimize thermal-energy losses. The nonprofit research organization Passive House Institute in Germany verified the building’s performance. The announcement is “fantastic news,” said Ken Levenson, executive director of the U.S.-based nonprofit Passive House Network. “It’s proof that Passive House [performance] is applicable to many, many” types of buildings — not just homes, as the name suggests. In 2022, the organization deemed the Winthrop Center design, which has taken six years to realize, a trailblazer. Buildings consume — and waste — vast amounts of energy, making them responsible for about a quarter of emissions globally, according to the International Energy Agency. The trend has yet to improve; in 2022, buildings used about 1 percent more energy than the year before.
- North America’s first zero-carbon office tower opens in Vancouver
The Stack, Vancouver's tallest commercial building, is setting new standards for environmental and workplace excellence in Canada. Not only is The Stack setting new benchmarks as Vancouver’s tallest commercial building, but the property is also raising the bar on the environmental side as well. The building, which officially opened its doors this week, represents a landmark in the commercial real estate industry’s journey to decarbonization as it is the first office tower to attain the Canada Green Building Council’s Zero Carbon Building – Design standard certification and the first high-rise commercial tower in North America built to zero carbon standards. The Stack is co-owned by Oxford Properties Group and CPP Investments. Designed by Vancouver-based architect James K.M. Cheng, the 37-storey, AAA-class 550,000 sq. ft. office tower is situated in a premium location in the city’s downtown, enhancing the city’s skyline with its unique twisting, stacked box design. By achieving zero carbon status, The Stack also plays an important part in the progress of the City of Vancouver and Province of British Columbia’s 2030 zero-carbon goals. The Stack was able to achieve this status through its implementation of innovative features that minimize both carbon emissions and energy intensity, including low carbon building systems and a high-performance triple-pane glazing system. The Stack also deploys smart building technology to provide insights on energy management to optimize building performance and enable preventative maintenance. On-site renewable energy is achieved through a rooftop photovoltaic solar panel array that will generate 26,000 kWh of energy annually.
- CNI Firms: Climate Tech is Increasing Cyber Risk
Over eight in 10 (83%) of the UK’s critical national infrastructure (CNI) firms believe new technologies designed to enhance sustainability will become a significant vector for cyber-attacks, according to Bridewell. The security services firm polled 500 cybersecurity decision-makers in the transport and aviation, finance, utilities, government, and communications sectors to compile its report, Security and Sustainability Across Critical National Infrastructure: 2023. The report found that most UK CNI firms have active IT (58%) or OT (62%) projects underway, focused on reducing carbon emissions and enhancing resource efficiency. However, the vast majority are also concerned that these new technology deployments – which could span cloud computing, renewable energy infrastructure and smart grids – will expand the cyber-attack surface and number of entry points across CNI networks. Over two-fifths (42%) of respondents claimed these new technologies are harder to manage and protect, and a similar share (40%) that they will require significant retraining of security teams. Even more (43%) are concerned that the C-suite appears to have little understanding of the new risks their organization could be exposed to.
- 90% respondents say ESG considerations shape corporate real estate strategies – Knight Frank survey
More than 50% of respondents are taking tangible steps towards ESG integration, either by establishing ESG plans or net-zero carbon targets. 40% of organisations aim to achieve their targets by 2030, while another one-fifth have set their sights on longer term plans, extending beyond 2030 to 2050. While “financial considerations continue to remain on the radar, the adoption of ESG practices is increasingly playing a key role in long-term planning”. KUALA LUMPUR (July 3): More than 90% of respondents have indicated that environmental, social and governance (ESG) considerations play a role, either fully or partially, in shaping their corporate real estate strategies, a survey by Knight Frank Malaysia revealed. In its second white paper survey entitled “The Age of ESG: Futureproofing Corporate Real Estate with Sustainability”, Knight Frank Malaysia also found that more than 50% of respondents within the corporate real estate community are taking tangible steps towards ESG integration, either by establishing ESG plans or net-zero carbon targets. Of these, 40% of organisations aim to achieve their targets by 2030, while another one-fifth have set their sights on longer term plans, extending beyond 2030 to 2050.
- Regulation Is The Only Thing Pushing Real Estate To Tackle Its Enormous Carbon Footprint
An investigation into the carbon reduction policies of the world's 75 largest real estate owners and managers shows that if regulators push the sector to cut emissions faster, it will comply. But until a harder push comes along, CRE will do only what it is obligated to by law. Bisnow data shows that where clear regulation is enforced, real estate owners are taking action to reduce their greenhouse gas emissions. Yet more stringent regulations would compel them to cut emissions more deeply and quickly, according to several investors interviewed for this investigation. “The only way to get everyone to cut 10 years off their target is regulation,” Orchard Street Investment Management Head of Sustainability Lora Brill said. “You have to make holding high-carbon properties unviable or reward holding low-carbon properties.” Of the 75 largest institutional investors, investment managers and listed companies in the real estate sector, almost half have no decarbonization target for their real estate portfolios. Meanwhile, the majority of investors with concrete emission reduction goals omit roughly 90% of the greenhouse gases they emit, Bisnow’s investigation found. The final installment of this series focuses on how quickly those 75 institutional investors, REITs and investment managers are looking to decarbonize compared to targets set by regulators. It also analyzes the degree to which carbon offsets are being used to hit net-zero targets — a controversial area given the ongoing debate over whether carbon offsets actually work. A report last month from the U.N.’s Intergovernmental Panel on Climate Change highlighted that government and city regulations need to become stricter and better aligned with climate targets if global warming is to be reduced and its worst impacts on humanity avoided. Bisnow’s investigation found a strong correlation between the net-zero carbon target of an organization and the target of the country in which that organization is headquartered. Of the 47 organizations that had a decarbonization target, 20% were cutting emissions faster than needed to hit government net-zero targets while two-thirds were exactly in line with targets. For many in the industry, that is evidence that although real estate has made great strides in tackling the arduous task of reducing carbon emissions, regulation is ultimately the force driving change. “There is a lack of clarity on regulation and standards at the moment, which makes it difficult for investors to determine policies,” LGIM Real Assets Head of ESG Shuen Chan said. “A clear definition of what net-zero means would set a global standard and help avoid potential greenwashing.” Bisnow’s interactive data visualization tool examines individual company targets and how they compare to national targets. Organizations can be sorted by when they plan to decarbonize and other metrics. Each dot can also be clicked to find information on individual investors and managers.
- How collaboration can end the climate crisis
Mayor Sadiq Khan has bold ambitions for the City of London to become zero-carbon, zero-pollution by 2030. However, to truly hold ourselves accountable and hit these massive 2030 goals, it’s about ensuring that cities work together to collectively address an issue head on that impacts us all. Cities like New York and London need to work in unison to scale and grow climate change programs and climate tech innovators to help the greater good. Here are a few actionable ways cities, policy makers, and organizations have been collaborating, and how I envision it growing. POLICY MAKERS CAN’T JUST CHECK ESG BOXES Policy makers cannot work in silos and need to provide platforms where collaboration is being fostered. Fortunately, organizations such as C40, a collection of dozens of mayors across the world looking to work together on climate change, have helped set the foundation for more in-unison work as well. They have a clear-cut mission to halve the emissions of their member cities within a decade while simultaneously stimulating the green economy. Earlier this winter, C40 mayors announced they would collectively develop programs and initiatives to drive the creation of 50 million additional green jobs by 2030, led by C40 chair Khan. Cities looking to join also need to have an actionable climate plan or initiatives that drive urgency and attention given to the Paris Agreement goal of limiting global temperature rises to no more than 1.5 degrees Celsius (the equivalent of 2.7 degrees Fahrenheit). This helps set a global model for cities around the world to follow suit and work toward a zero-carbon future.
- The next hot fast food menu item? Electric car charging
Several major fast food and convenience store chains have recently announced a big push into electric vehicle (EV) charging, a trend that could accelerate efforts to expand the country's embryonic charging infrastructure. Why it matters: Automakers are finally getting serious about electrification — yet many would-be EV buyers want more assurance they'll be able to find chargers when they need them. Driving the news: Convenience store chain 7-Eleven recently launched its own EV fast-charging network, called 7Charge. The network has chargers across Florida, Texas, Colorado and California so far, with plans to expand into Canada as well. (The company didn't respond to Axios' question about how many chargers it has installed.) Users will be charged based on the energy they consume or the time they spend charging, depending on local regulations. 7Charge is compatible with a wide array of EVs — even Teslas, though they'll need an adapter. Catch up quick: Fast food giant Subway last month announced long-term plans to build car-charging "oases" replete with green spaces, playgrounds and more. (Electrify America, one of the foremost charging-specific companies, has similar ambitions.) More immediately, Subway is working with franchise owners to install stand-alone fast-chargers at various locations. One major Taco Bell franchisee, meanwhile, is rolling out EV chargers at more than 100 of its California restaurants, USA Today reports. The intrigue: In a press release, 7-Eleven touted its potential to address the charging gap. "7-Eleven will have the ability to grow its network to match consumer demand and make EV charging available to neighborhoods that have, until now, lacked access," reads the release. Be smart: Stores that install EV chargers will likely make a decent buck on charging fees, just like gas stations take a cut when you fill up your tank.
- Less than a third of businesses know how energy efficient their office building is
Despite new Minimum Energy Efficiency Standards (MEES) legislation coming into effect in April, there is still a significant lack of understanding around the energy efficiency of office buildings Too many UK businesses are largely unaware about new environmental legislation concerning the energy efficient office buildings they own and occupy, according to a new survey commissioned by Irwin Mitchell: Redefining the Office – A report on office occupier trends in 2023. The new Minimum Energy Efficiency Standards (MEES) legislation requires that from 1st April 2023, property owners must not continue to let properties that have an EPC rating of F or G (unless they have an exemption) and all let properties will need to have a minimum EPC rating of E. Less than half of survey respondees were prepared for the legal changes The survey of over 500 office property decision makers found that only 32% of respondents said they knew the Energy Performance Certificate (EPC) rating of their main office building, with a similar percentage of only 31% saying they know what EPC rating their office needs to be in April. Nearly a fifth (19%) of the property decision makers surveyed admitted they do not know their office’s EPC rating at all. Another 18% admitted they do not know what is needed for their energy efficient office building to be compliant in April. 10% of respondents said they do not understand EPC ratings. Tim Rayner, joint head of real estate disputes at Irwin Mitchell, commented: “These figures should raise eyebrows, particularly given the changes come into force in April and with further new Minimum Energy Efficiency Standards (MEES) legislation down the line. For example, for all new tenancies beginning in 2025, the government is keen to change the minimum rating to a C.” The survey revealed a number of concerns with the new MEES legislation Topping the list of surveyee’s concerns was lack of knowledge– with just under a third (32%) responding that they were concerned that they don’t know whether their office will be MEES compliant from April 2023. Other concerns respondents listed were that landlords would pass on the extra costs of upgrading buildings via the service charge or dilapidations claims (21%) and the disruption to working when landlord upgrades are carried out (18%). 16% of respondents said that they were concerned that if their landlord did not carry out the requisite work, they won’t be able to renew their lease. Tim Rayner continued, “Office occupiers really need to keep an eye on the situation. Whilst the cost of upgrades is in theory an issue only for landlords, some landlords may prefer not to incur that costs at all and instead try and end the lease.” “Those landlords who intend to carry out the upgrades may not only want access to the premises and cause potentially significant disruption but may try and pass on the cost of the upgrading either via the service charge or by seeking to include additional obligations in new leases, making tenants expressly liable for such costs. The MEES deadline is fast approaching and therefore it’s important that tenants are forearmed and ensure, for instance that their leases provide the controls they need.” 84% of respondents said they’d be prepared to pay higher rents for office space that reduces their impact on the environment– but most would expect some payback from the landlord in terms of reduced service charge or energy bills.