Recap: Going Green — Sustainability in the Built Environment | Hosted by NYU SPS

Joshua Moinian, Proptech & Innovation Chair, NYU REISA, kicked off the session and introduced the panelists:

• Michael Beckerman, CEO, CREtech
• Greg Smithies, Partner, Fifth Wall
• Michael Rudin, SVP, Rudin Management
• Trista Miller, Associate Director, Sidewalk Labs

Prompt: Each of you were selected for this panel for your unique perspective. Can you share a brief introduction?

Beckerman: I am the CEO at CRETech, the largest global platform devoted to raising awareness and connectivity in the real estate tech system.

Smithies: I co-head Fifth Wall’s Climate Tech fund. Previous to this, I was in Elon Musk’s world working at the Boring Company and Neuralink.

Rudin: I am the SVP of Rudin Management. We own and operate about 15M sqft in NYC (10M office, 5M multi-family). I am 4th generation in the family business; we take a long-term approach. Sustainability has always been a key focus in how we run our properties and communicate with tenants. I also help run our venture platform, primarily investing in early stage proptech companies who can impact our business. We’ve invested in a number of funds, including Fifth Wall.

Miller: Sidewalk Labs is an Alphabet company focused on urban innovation. We think about how we can use technology and innovation to drive affordability and sustainability in the built environment. We are also incubating a number of internal companies that are getting ready to go to market.

I am focused on pre-fabricated mass timber buildings. We are in the process of building a factory where we’d produce a lot of mass timber buildings off-site. There is a lot of innovation in construction and internal policies around procurement and sustainable forestry that we are thinking through.

Prompt: Why sustainability? Why are you passionate about this space?

Beckerman: I’ve been in Commercial Real Estate my whole career (30+ years). And I am personally passionate about sustainability. But I never paired the two together. After a lot of conversations, I had an awakening. The real estate industry is contributing so much to climate change. I have a platform, so I decided to take action. After CRETech launched, with Fifth Wall, we launched CRETech climate. It focuses on awareness, education, and connectivity in the space. There is a reckoning coming to the real estate industry — the industry has to wake up. We have to take responsibility and create cleaner and safer living environments. I am passionate about it and I see it is a massive opportunity. It is bigger than what I saw in real estate tech ten years ago and I think it is even more consequential for humanity.

Smithies: A few years ago I was working on how to de-carbonize cars, but when I realized 40% of all global greenhouse gases come from buildings, I shifted to real estate. This may be the largest venture capital opportunity in history. The de-carbonization of buildings is going to be 2, 3, maybe 4x larger than some of the biggest opportunities in the past ten or twenty years (ie: internet).

Miller: I’ve worked the most on construction. When you think about that number 40% — about 72% is operational carbon and the rest is embodied carbon. A lot of the focus and policy advancement to date has been on operational carbon. A lot of progress has been made.

I believe it is really important to think about the materials being used in building structure. We started to think about all the raw materials — in manufacturing, transportation, and at the end of the building lifecycle. After looking closely, we narrowed our focus on mass timber.

Some of the first steps to take are getting the correct data. It has not often been collected at the supplier level, let alone aggregated at the building level. There is a big push now to get more transparency and information so developers and general contractors can make more informed procurement decisions. We hope this leads the way for incorporating more sustainable materials in the process.

Rudin: As a multi-generational company, my hope is my kids and grandkids work in this business (if they so choose). In order to ensure that, we need to make sure the world is around for them to live in. It comes down to doing the right thing. We want to make these changes, but the stats have to be there. There has to be buy in. And everyone has to do their part. It is on the owners, developers, construction firms, tenants, and suppliers. Everyone has to do their part, otherwise it is an incomplete puzzle.

The focus to date on sustainable technologies in the real estate world has been on owners and operators. Yet on the commercial office side, as a building owner, we only account for 40% of energy consumption in the building. We need to make sure people understand the reality of the numbers. I think the most untapped resource and opportunity for VCs is on the tenant’s side of the ledger. We can’t tell our tenants how to run their business. It is on them to take responsibility.

Prompt: Sustainability has to be normal and routine. When someone moves in, they should be able to assume the building is following certain protocols related to sustainability, just like they assume the building is following fire-safety protocols. What are developers doing to create sustainable buildings and what is driving their decisions?

Rudin: As I mentioned, we can get to carbon neutral in how we run our buildings, but if our tenants are not doing their part, we are not going to get there.

There are proactive and reactive measures being taken. This is NYC-specific, but recently local law 97 was passed. This will put fines on building owners and operators for emitting carbon over a certain cap. This is great. But the comprehensive legislation has to make sense. The fines building owners may pay don’t go into a sustainability fund or something to help offset carbon. They go into the city’s general fund. We’ve lost it there. If the fines we pay for not complying don’t help the city as a whole get better and on track, it is kind of pointless.

In NYC, renewable energy doesn’t really exist. Supply is well below the demand. We can buy renewable energy credits, but it’s not actual power coming to our buildings. We need more incentives around renewable power generation and renewable power transmission. I think this ties into the Fifth Wall thesis. There are so many opportunities for investment and growth.

From an in-place perspective (not including construction) — we have to focus on that operational carbon that Trista mentioned before. 80% of buildings in 2050 already exist today. We should setup standard practices. The city, state, and federal governments need to put mandates and challenges in place.

Overall though, there have been some real positive things happening. We have seen almost every fortune 500 company announce carbon footprint goals.

Prompt: Sustainability is no longer an ethical measure. Sustainable business is good business - how can we help communicate this message?

Smithies: There is an assumption if we buy clean and green it’ll be more expensive, or there will be some downside to it. But there are a few climate trojan horses. What I mean by this is climate technology that is cheaper, better for the environment, and easier to maintain. For example, there are new HVAC motors (Turntide Technologies) that are about 60% more efficient and pay for themselves in about 2 years. These climate trojan horses are a new category where it actually isn’t a trade-off, it’s a default decision. It is a financial no-brainer. We just need to invest in more technologies to get over that hump. Things that are more efficient use fewer inputs and should be cheaper in the long run.

Miller: If you think of the corporate end users, there isn’t aways a strong link back to construction. But some are taking an interest. Many companies are thinking about using greener versions of materials. Microsoft, Adidas, and Walmart are just some of the businesses investing in timber and building in timber. Walmart invested in the mass timber supply chain as well.

I think they understand it is difficult and requires a significant upfront investment, so thinking about partnerships that can support that is really important.

I’ll emphasize it takes everyone — all the way down the supply chain to the manufacturers to the end users. It’s about driving demand and looking for developers to make a longer term investments in the quality of the space.

Prompt: Studies show that we need $15–20T dollars to truly reduce the real estate industry’s carbon footprint to zero. In the last decade we have spent less than $100M investing in climate tech. What will it take for the industry to make a difference?

Smithies: We may need a Tesla moment. What we saw with Tesla vs. Ford and GM. We need one owner, operator, or developer to get crowned as the leader and shoot off to the stars. And everyone else will have an ‘oh crap’ moment because they don’t want to be left behind.

Rudin: Real estate is a huge industry and incredibly fragmented. For better or worse, there is not one owner that owns X% of the market in a city or across the world. The good news is, a lot of the big players — the Blackstones, Brookfields — are doing really incredible things. As that becomes more and more the norm then eventually everyone else who is informed is not going to want to be left in the dust.

There has to be incentives — downward and upward pressure — from tenants, the government, and others. We need a combination of all of these things to get everyone moving collectively forward together.

Beckerman: Change is not going to come from within the industry, it will come from external sources. It has to come from tenants who demand it; consumers, renters, and buyers who insist it.

They are light years ahead of us in Europe. They get it — the citizens, corporates, they mandate it.

Miller: In general, the construction industry has been under pressure since the financial crisis. There was a shortage of skilled labor and prices to build were driven up. It makes it harder to think about sustainability. There’s a perception, and sometimes a reality, that sustainable materials come at a bit of a premium.

The pandemic accelerated technology even more. There is a lot of technology improving efficiencies in construction. Investments, especially in the digital space, around pre-fabrication, coordination of the supply chain, and end-to-end construction management will improve efficiency. There is also a lot of investment in product for manufacturing and space design.

Prompt: What is working in the ecosystem?

Smithies: I think there are two buckets. The first, is climate trojan horses, as I mentioned. There are a lot of these that already exist in the heating and cooling space. For example, Therma has developed sensors that cost $1K to install, but save up to $100K in cooling costs.

The second bucket is more of a sci-fi angle, related to carbon sequestration technologies. It will take so long for the industry to get to zero itself, we have to plan to get to net-zero. Alternatives to concrete, such as mass timber, are critical in this effort. It may take 10 years to get it right, but we need to start investing in it now.

Rudin: About half of our direct investments have been in companies doing something in sustainability or energy.

The accounting side of it is probably the most exciting piece. Carbon will become a concept in the near future that is traded, bought, and sold between buildings and companies. How do you verify if you generated energy? How do you prove to the world you are reducing your carbon output? That carbon accounting infrastructure is going to be very important. Small and big companies have worked on it. Cleartrace has partnered with Brookfield Renewable Partners and JP Morgan. They are coming together to create platforms that support the true end to end process — generating, selling, tracking, and auditing. KPMG is involved in it.

Prompt: Moving towards timber will need to address deforestation. How do you plan to do that?

Miller: There has actually been a lot of work done in this space. There are certification programs at the global level and in North America, and we are careful to consider forestry practices. We are thinking about tracking the chain of custody as it relates to timber products, being upfront about working with best-in-class suppliers and about our procurement policies. We want to ensure you know where the timber in your building came from.

It’s also important to compare the embodied carbon of timber buildings to concrete and steel. Instead of a tree decomposing in the forest and releasing the carbon, that carbon is sequestered into the building.

Prompt: Do you have comments on any other success stories you have seen in the industry?

Beckerman: When we announced the CREtech climate, so many interns reached out wanting to be involved. I have hope in the younger generation. We’ve got some leaders and great investors. We’ve got some great landlords — the RxRs, Rudins, Oxfords, Sidewalks. We need the corporates. They’ve got to demand to be in buildings that are healthier, safer, and better for the environment.

Smithies: In the last 15 years or so, we have had some of the greatest minds in the world making millions of dollars optimizing ad click throughs. What if in the next 15–20 years, we have the greatest minds of the world making millions billions of dollars saving the planet. I believe the future is in tech and entrepreneurship.

Rudin: This is a tremendous opportunity. It may not be fast. Our industry is inherently slow to do things. But it doesn’t mean the opportunity is any less real or significant.

Miller: I just want to emphasize the collective eco-system. It’s important to have voices from the energy efficiency side, as well as the construction space. Developers, as well as a policy leaders to build greener across the board.

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