Fifth Wall, focused on real estate technology and with $3.2 billion under management, wants to consume even more of its market

Brendan Wallace’s ambition seems almost limitless. The Los Angeles-based venture capital firm, which Wallace and co-founder Brad Greiwe founded less than seven years ago, has $3.2 billion in assets under management. But this company, Fifth Wall, which claims huge financial returns at the intersection of real estate and technology, is not in the business of digesting that capital. Large investors, including CBRE, Starwood and Arbor Realty Trust, also seem unconcerned.

It doesn’t matter if the Fifth Wall closed last month the largest venture capital fund in history targeting real estate tech startups with $866 million in capital, or if it launched a $500 million fund in early 2022 that aims to decarbonise the sector. . Never mind that, in addition to these two efforts, Fifth Wall also expanded into Europe last February with a London office and a €140 million fund. (Also a large office in New York, an office in Singapore and a presence in Madrid). With office buildings in particular being hit by a combination of layoffs, working from home and higher interest rates, Wallace sees this as an opportunity.

In addition, Wallace already sees many other opportunities he wants to capitalize on, including in Asia, as well as in infrastructure, including the purchase and construction of “utility-scale wind and solar farms and microgrids” that Fifth Wall plans to invest in for financiers . . offers.

It’s a lot to take on, especially for a team now in their 80s whose biggest selling points are now home improvement company OpenDoor, real estate insurer Hippo Insurance and SmartRent, which sells smart home technology to apartment owners and developers. No one was spared by public market share holders; However, if you talk to Wallace and paint the picture he paints of the world, it’s easy to see why investors keep throwing money at his team.

We spoke to him earlier today in a chat run by his extension.

TC: Why are so many of your real estate investment partners investing so much capital with you when it’s such a challenging time for real estate, especially office buildings?

BW: It’s the same thesis we’re using, which is that the two largest industries in the US, real estate, which accounts for 13% of US GDP, and technology, are colliding and representing a massive explosion in economic value. [as] We’ve seen proptech companies grow in these kinds of supercycles. Now that extra layer around air conditioning technology has been exposed. The biggest opportunity in air conditioning is actually the built environment. Real estate is responsible for 40% of carbon emissions, but the climate VC ecosystem has historically invested only 6% of climate VC dollars into real estate technology.

How do you determine which vehicle, your main proptech fund or your climate fund, will fund a particular startup?

How we define proptech is technology that the construction industry or the hospitality industry can use, so it has to be technology that they can use right away, which can be many different things. It could be leasing, wealth management software, fintech, mortgages, operating systems, keyless entry, but it doesn’t necessarily have the effect of decarbonising real estate. It may be a spin-off, but it’s not the main focus. The main focus is simply that this industry has been so slow and late in adopting the technology that is now starting, creating all this value in the process. We’ve already gone public in six portfolio companies, and we’re a six-year-old company.

[As just one example]Do you know how many apartment buildings have a smart device these days? One percent of all apartment buildings in the United States have a single smart device, every smart device: a light switch, blinds, access control. There is currently a major shift taking place where everything in a building is becoming smart. And we’re just at the beginning of this.

However, I believe the opportunity for climate technology is a multiple of that simply because the cost of decarbonising real estate is so high. The cost of decarbonising the US commercial real estate sector is estimated to be $18 trillion. That’s just commercial real estate in the US. To put that in perspective, the US GDP is $22 to $23 trillion and we need to decarbonise real estate over the next 20 years. One way to think about it is that we don’t have to spend about a year of US GDP over the next 20 years to decarbonise our physical assets.

What are the main spending areas you focus on?

I will give you a very concrete example that is literally concrete. If concrete were a country, it would be the third largest emitter of CO2 in the world, after the United States and China. 7.5% of global CO2 emissions come from the production of concrete. It is the second most used material on planet Earth after water. So you have this raw material that is an input to all our infrastructure, all our cities, all the homes we live in, all the buildings we do business in, and it’s responsible for 7.5% of global carbon emissions. And so the race began to find a way to make carbon neutral or carbon negative. In fact, along with Bill Gates and Jeff Bezos, we’ve invested in a company called Azufre because they too see this opportunity as one of the key spend categories that will receive the $18 trillion needed to decarbonise real estate. then you can go down [list]Glass, steel, laminated wood, all materials used in construction.

More directly, and this is more of a space repurposing issue, but what do you think will happen over the next 18 to 24 months to underutilized offices in this country? I know it’s particularly extreme in San Francisco, as there are many technicians here who have not yet returned to the office.

I wouldn’t draw too many conclusions from San Francisco alone. I think San Francisco was probably the hardest hit city. I don’t think San Francisco is the canary in the coal mine for the rest of the American office industry. But aside from that, I think we’re now at a point where the pendulum has clearly swung a lot towards hybrid working and companies are reducing their physical footprint, but you’re already starting to see these things being circular and cyclical. and that some employees really want to go back to the office, while CEOs say, “It’s hard to nurture and build a culture and drive the kind of operational efficiency we used to have in an office in a totally remote environment.” so we’re probably two or three years away from another pendulum swing towards companies that only have a physical office. I think we’re at an artificial low in terms of sentiment and demand for public office.

Source: La Neta Neta