Real Estate. The Planet’s Trojan Horse?

Real estate is everywhere: your house, your office, your favorite store, even the places where you enjoy spending your free time. We admire, build, and demolish it. But, is there another side of the coin?

Real Estate. The Planet’s Trojan Horse?
Smog covering the Empire State Building. New York, NY, US, November 21, 1953

Realty is the symbol of welfare and indicates the progress of civilization. There is no one in the world who does not have an idea or an opinion about it. The first houses were built almost two million years ago. The oldest still-standing structures are more than 5,000 years old. Exactly 90 years ago, the Empire State Building in New York City was completed. It was the first skyscraper to have more than 100 floors. In 2010, we broke another record — the Burj Khalifa in Dubai reached twice the height of New York’s icon of the 20th century. At the same time, the growth of civilization is allowing more and more people to live better — between 1990–2020, the percentage of people living in extreme poverty decreased by four times reaching 9.2%. Less than 1% of Americans are homeless, 2/3 of these have a roof over their heads thanks to homeless shelters. Real estate represents the basic safety needs, and therefore it is part of our DNA.

Is there another side of the coin? Due to the fact that buildings are so important and so present in our lives, it seems that we are losing the ability to notice non-obvious things. And there is nothing extraordinary about it — generalization is a unique ability without which we would not be able to function effectively in the world. Indeed, real estate is subject to stereotypes, nothing more. It gives us safe and warmth, protects us from fierce animals and bad weather; represents the most important property rights; and is considered the safe way to invest capital.

Generally, most often we identify real estate with safety. However, this undoubtedly positive stereotype also brings danger. There is a risk that, in our enthusiasm, we have not noticed that, as did the Trojans, we have allowed a mortal enemy to enter the city.

What is hidden inside the Trojan Horse?

First, in order to tell this story, we need to go back to the mythological Homer’s The Odyssey and… change it a little bit:

Let us imagine the defenders of Troy pulling a huge wooden horse into the city. And then, out of curiosity or precaution, they check what is inside the horse. The bravest of the warriors tears off a few planks, shines a torch into the wooden structure and… nothing. There is nothing and no one inside.After the huge celebration of the defense of the city, the inhabitants go to sleep peacefully. In the morning they wake up in strange, unreasonable anxiety — they do not know what has happened yet, but they feel in their bones that the city is no longer theirs…

And this is exactly what the Trojan Horse of real estate is, or at least one of the horses responsible for climate change. Invisible to the naked eye. Microscopic. It consists of only three atoms joined together into a compound called carbon dioxide.

Each year real estate is responsible for emissions of more than 20 billion tons of such “warriors” into the atmosphere, which represents 40% of global greenhouse gas emissions. This percentage is dramatically greater in some places — for instance, in New York City, in “the city that never sleeps”, buildings emit 70% of its CO2.

These facts raise many questions. Most people with whom I talk, when they learn these basic data, intuitively feel the scale of the problem and difficulties it brings.

Cut the bullshit. We need to talk about the real estate problem

This year CREtech Climate Report released a report on climate technology for the commercial real estate industry. The document included the results of a survey that was conducted among the owners and developers of almost one billion square meters of space.

The results showed that, when it came to investing in climate technology in respondents’ properties:

  • 54% of respondents said they had a moral responsibility for climate change,
  • the priority investment was efficient lighting,
  • what hindered their other investments was a lack of clear return of investment (ROI).

To be honest, while writing those three points, my mind was fighting fiercely with my heart. I understand the arguments about money — I run my own business in the same industry. However, reading the results of the survey it is hard for me not to associate them with a study called the Stanford Marshmallow Experiment conducted in 1972 at Stanford University. That famous experiment examined so-called delayed gratification, or the ability to resist a small, immediately available reward to obtain a bigger reward in the future. I have the distinct impression that most of the real estate respondents of the survey would, without hesitation, take the only cookie left on the table for the time of the experiment…

A new light bulb is not enough to save the planet. Mathematics leaves no illusions; we are in an exceedingly difficult position.

In one of the interviewees, Greg Smithies, a Fifth Wall partner, who leads the team responsible for investments in climate technology in real estate, drew a good conclusion about this matter.

Smithies pointed out to his audience that installing the best technologies across all of the buildings would only solve less than half (44%) of the total CO2 emissions problem.

In this context, my biggest concern is so-called greenwashing. This is a marketing practice used by companies that apply apparent pro-environmental changes. They organize “eco-friendly” ad campaigns and create a false impression that “everything is going to be fine; we are green, and we are changing the world.” Coming back to our Trojan Horse myth, I imagine the Trojans in all their excitement painting the horse green and saying, “now for sure nothing can threaten us!”

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How to invest in technology that helps real estate and where to find the “ROI”?

Since the current solutions are not enough, we need to invest in the future. The development of technology is a path that the market simply has to follow — as real estate market makers, either we start doing it ourselves or we will be forced to do so by legislators. That is why we should start when we have a choice and can set the rules of the game.

Given that more often we take the cookie that is already on the table, we should remember that investing in climate technology does not have to have, as mentioned by respondents in the CREtech survey, a “lack of ROI.” For example, the oil industry, in theory, is “enemy number one” of all environmental actors. The Danish company Ørsted has undergone a real “from black to green” revolution. In less than 10 years, this largest oil business in the region has become the biggest producer of offshore wind energy in the world. Over the past two years, the company’s shares have risen by 300%. During this golden period for the Danish company, the value of its competitors in the oil business was falling 20–30%.

In these premises you may win a fortune

The real estate market should be opened to investing in ecological solutions. Let us imagine that you had invested in a company that found a way to build the next Empire State Building, but yours would be zero emission at each stage — whether it is producing components, construction, or functioning. Assuming that new, yet unknown technologies are involved, you have a market monopoly. You won, they lost.

Let the proof of this be the dynamics with which Fifth Wall, the largest PropTech fund, raises money for a special fund dedicated to green technologies. The race has just started.

I believe that Kara Swisher, the technology journalist, is right. In 2019, in the New York Times she stated that:

“…the world’s first trillionaire will be a green-tech entrepreneur.”

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