RET Ventures, an early-stage venture fund specializing in cutting edge real estate tech companies, officially launched its new ESG innovation-focused Housing Impact Fund in April. Targeting an $80 million capital raise, the fund is backed by two main investors, UDR, Inc. (NYSE: UDR) and Essex Property Trust, Inc. (NYSE: ESS)—two REITs that agree the time is ripe for investing in ESG solutions for the residential sector.
Primarily, the Housing Impact Fund will invest in technologies that mitigate the environmental impact of new and existing residential real estate, address social issues among residents, and help investors and institutions abide by evolving regulatory guidelines. The plan is to invest in 12 to 14 startup companies over the next two to three years.
Over the past few years, RET Ventures was spending more and more time in the broader ESG space, particularly “trying to ask and answer the question of what does ESG mean for some of our strategic investors, the public REITs, these large owner-operators,” says Christoper Yip, partner at RET Ventures.
It became clear, he adds, “that ESG is at the forefront for many of these owner-operators. And we saw the opportunity, together with UDR and Essex, to launch a new effort focused on bringing ESG solutions to the multifamily and single family rental space.”
Indeed, when investors in RET Ventures met at their annual summit recently to discuss investment priorities for the Housing Impact and other funds, “there was a clear consensus that the focus should be on environmental efficiency, specifically relating to reducing greenhouse gas and carbon footprints consistent with IPCC, Paris Accord, and other science-based targets,” says Michael Schall, president and CEO of Essex Property Trust.
Moving the Dial
Scott Wesson, senior vice president and chief digital officer at UDR, says he and his team have “just begun to see complementary technologies coming to market that can move the dial, and capital is needed to move these initiatives forward. We also believe these efforts are becoming more important to our residents, and the new technologies borne out of the Housing Impact Fund should help improve the customer experience.”
In addition to creating operating efficiencies at companies, Schall says they also expect attractive paybacks in the form of successful prop-tech investments and lower utility usage as solutions are rolled out across portfolios. “The deal flow for ESG-related opportunities is growing rapidly, making this an ideal time to create and invest in the Housing Impact Fund,” he says.
RET Ventures observed an increasing focus and awareness at all levels of the institutional real estate ecosystem on ESG issues, which includes regulators, investors and capital allocators in real estate, as well as the residents, who are important stakeholders, and employees, Yip adds.
One important trend has been the growing number of climate-oriented regulations: from local regulations, like New York City Local law 97, which imposes penalties for not meeting energy intensity guidelines, to national commitments to reduce the carbon footprint on the regulatory front, to the SEC’s proposed climate-related disclosure rules, and the Paris Climate Accord.
Yip says that what’s new in the last few years is an increasing ESG focus from institutional asset allocators like BlackRock, Ivanhoe, and Cambridge. In Canada, Blackstone is setting very specific greenhouse and carbon reduction targets in their portfolio. Ivanhoe, meanwhile, wants a carbon neutral global real estate portfolio by 2040 and all new developments to be carbon net zero from 2025.
Yip believes that many are eager to participate in the new Housing Impact Fund, pointing out that RET Ventures’ group of strategic investors and owner-operators need help from innovative technology startups to meet both reporting requirements, as well as carbon and energy emissions reduction targets. UDR, for example, has stated that by 2025, it hopes to achieve a 25% reduction in greenhouse gas emissions and a 20% reduction in its energy footprint by 2025.
Overcoming Challenges
Some of the biggest issues that the fund’s two main investors and RET Ventures agree on are the reduction of building energy consumption, water conservation, and the rising demand for electric vehicle charging stations.
Wesson says that creating better transparency about the whole residential building, most importantly the residents’ energy consumption, can help in improving the building’s environmental footprint.
One of the challenges that the fund hopes to alleviate with its support of tech firms is the collection of data on energy consumption, which is needed to be able to set energy reduction targets.
