Brendan Wallace, co-founder and managing partner of Fifth Wall in their Manhattan office.
Fifth Wall, a venture capital firm focused on real estate technology, is tripling its bet that climate technology will become an integral driver of the real estate industry.
It just announced half a billion dollar pledges to close its inaugural climate fund, which launched last August with $116 million. It is the largest private fund created specifically to decarbonise the real estate sector, the company said.
According to the United Nations Environment Program Finance Initiative, nearly 40% of global carbon dioxide emissions come from real estate. About 70% is produced by construction activities and the rest comes from the construction process. Since most real estate already exists, the goal of net zero emissions is difficult to achieve.
The fund aims to invest in software, hardware, renewable energy, energy storage, smart buildings and carbon sequestration technologies.
“What we want to do is identify key spending categories where real estate owners need to put capital. And then our company buys non-controlling minority positions in those companies,” said Brendan Wallace, co-founder and managing partner. of Fifth Wall. He emphasized that the fund will then work with those companies to accelerate their growth.
“We have some of the largest real estate owners and operators and developers as LPs (limited partners) in our fund, so those relationships allow us to help these early technology companies grow, open these distribution lines for them, where we basically have their largest customers as our LP,” he added.
Those partners are some of the biggest names in real estate, from developers and operators of single-family homes to the hospitality industry. They include American Homes 4 Rent, which builds and operates rental homes and communities in 37 US housing markets.
“The investment for us is relatively small, but having access to a number of small prop tech and environmental companies all looking for better single-family rentals is really what gets us excited about the opportunity. We have a lot of roofs and a lot of energy use,” said David Singelyn, CEO of American Homes 4 Rent, “From a marketing standpoint, our residents are typically those, that millennial generation that really appreciates this.”
For real estate companies, the return on investment is quite simple: they improve their own business.
“But also financial and institutional investors understand that this is one of the biggest opportunities,” said Wallace. “It is an investment opportunity for generations because, unlike 20 years ago, this is now imminent, real estate companies need to decarbonise.”
“It’s about to become a retrofit industry,” said Wallace, admitting that his half-billion-dollar fund is just a drop in the bucket against what he says will be an $18 trillion outlay just for commercial purposes. to decarbonise buildings, let alone homes and infrastructure.
What he calls “shocking” is that so little venture capital is being deployed in climate technology today.
“Historically, only about 6% of all venture capital dollars in climate technology has gone into technology to decarbonise real estate. So it’s a bit systematically underfunded in traditional venture capital markets,” he said.
Other limited partners include BBVA, British Land, Camden Property Trust, CBRE, Cosan, The Durst Organization, Equity Residential, Hilton, Host Hotels & Resorts, Hudson Pacific Properties, Invitation Homes, Ivanhoe Cambridge, Kimco Realty Corp., Lineage Ventures, MGM Resorts, NZ Super Fund, Osgoode Properties, and UDR.
The fund has already invested in several technology companies, including Assembly OSM, Brimstone, Clarity AI, Electric Hydrogen, Icon, Sealed, Span, Turntide Technologies and Wildcat Discovery Technologies, according to Fifth Wall.
