Fifth Wall’s First Climate Fund Aims For A Greener Real Estate Industry
The business world’s impact on climate change often focuses on sectors such as transportation, energy, and manufacturing. Real estate doesn’t tend to get nearly as much attention, but its impact is significant. Real estate drives roughly 39% of total global greenhouse gas emissions, according to a 2022 report from McKinsey & Company. A separate study from the World Economic Forum, released last decade, found that buildings use 40% of raw materials worldwide.
Despite real estate’s impact on the environment, there hasn’t been a whole lot of money invested into reducing that impact. As of mid-2022, the U.S. real estate industry had invested less than $100 million into climate technology R&D over the past decade, according to data from Fifth Wall, a Los Angeles-based venture capital firm that specializes in technology for the global real estate industry
Fifth Wall aims to help real estate transition to a much greener business model. In July, the company announced that it raised $500 million for its first climate fund to help decarbonize the real estate industry.
The fund brings together some of the country’s largest owners and operators of real estate as limited partners (LPs), including CBRE Group, Hilton, Host Hotels & Resorts, MGM Resorts, and American Homes 4 Rent. Other LPs include international firms such as Canada’s Ivanhoé Cambridge, Spain’s Banco Bilbao Vizcaya Argentaria, British Land Co., Brazil’s Cosan SA, and the New Zealand Superannuation Fund.
The fund will invest in software, hardware, renewable energy, energy storage, smart buildings, and carbon sequestration technologies. One of its goals is to help the real estate industry get to net zero – a daunting challenge, considering that an estimated $18 trillion will need to be invested over the next decade to hit that target.
“This is really the first time the industry, acting collectively, has come together to invest in this critical tech to help decarbonize real estate,” Brendan Wallace, co-founder and managing partner at Fifth Wall, told Reuters. “Real estate is the single-biggest lever we can turn on to mitigate climate change.”
In a separate interview with CNBC, Wallace said the climate fund will identify major spending categories where real estate owners must deploy capital, and then buy non-controlling minority positions in those companies.
“We have some of the largest owners and operators and developers of real estate as LPs in our fund, so by virtue of those relationships, we can help grow these early-stage tech companies, open these distribution lanes for them, where we basically have their largest customers as our LP,” he added.
At the time of the announcement, Fifth Wall’s climate fund had already completed strategic investments in several companies, including Assembly OSM, Brimstone, Clarity AI, Electric Hydrogen, ICON, Sealed, SPAN, and Wildcat Discovery Technologies.
In early August, the fund, in partnership with Montreal-based real estate company Ivanhoé Cambridge, completed a pilot project with Turntide Technologies to test new heating and cooling technology in commercial real estate spaces. The project was launched as a way to retrofit aging and inefficient HVAC systems, which cause the lion’s share of emissions at commercial real estate properties.
Axios noted that Turntide replaced existing HVAC motors with its proprietary smart motor hardware in two Ivanhoé Cambridge commercial retail locations, leading to an estimated 35% reduction in energy per location.
Fifth Wall brings considerable financial might to the fund. The firm is backed by a global mix of more than 100 strategic LPs from over 15 countries and boasts more than $3 billion of capital under management.
In addition to the LPs aligned with the climate fund, Fifth Wall’s partners also include BNP Paribas Real Estate, Cushman & Wakefield, Lennar, Lowe’s Home Improvement, Marriott International, MetLife Investment Management, and Toll Brothers.