Levering PropTech to Boost Sustainable Real Estate Returns

Raj Singh, Managing Partner at JLL Spark, dives into the critical factors for evaluating property technology (proptech) startups, highlighting the importance of strategic alignment and revenue potential.

In the second episode of The Future of CRE Sustainability, Sean speaks with Raj Singh, Managing Partner at JLL Spark, to explore the evolving landscape of commercial real estate. They explore the critical factors for evaluating prop tech startups, with Raj highlighting the importance of strategic alignment and revenue potential.

Topics discussed:

• The importance of strategic alignment and financial viability when assessing the potential of prop tech startups for investment.
• The growing need for sustainable practices and the challenges the industry faces in adopting new technologies for environmental impact are highlighted.
• Promising trends in commercial real estate technology, including advanced solutions that go beyond traditional tools like Excel.
• The significance of a startup’s ability to integrate seamlessly into existing business models and add value to client relationships is emphasized.
• Key financial metrics and considerations that determine the viability and attractiveness of prop tech startups for potential investors are discussed.
• The barriers and challenges faced by commercial real estate firms in incorporating new technologies and innovative solutions are examined.
• The ongoing challenges and adaptations related to the work-from-home and hybrid work models in the real estate sector.
• The importance of aligning incentives and benefits with costs when implementing new technologies in commercial real estate is discussed.
• How the political environment influences strategic planning and decision-making processes within commercial real estate firms is explored.

Raj Singh: Is that relationship going to make sense from a strategic angle? So think about a JLL representative talking to their customer. If they could also credibly bring the story of that particular startup into the conversation, then it’s of interest.
So it’s all about strategic fits and then, of course, financial fit. What I like to say is that if a company’s not going to be financially viable, they’re not going to be strategic because they’re not going to be around.

Sean Swentek: Welcome, everyone! Thank you for tuning into another episode of The Future of Commercial Real Estate. I’m here today with Raj Singh, Managing Partner, JLL Spark, the corporate investment arm of Jones Lang LaSalle. Raj, thank you for being here today.

What trends have you observed in sustainability and commercial real estate?

Raj Singh: We’ve gone essentially from talking about sustainability to actually trying to do something about it. Now, the story’s much longer than that, because we’re not actually doing such a great job. It’s taking way longer than we thought, in part because we don’t have all the data, in part because we don’t have the understanding of, “Okay, now I know where I am, how do I get to where I want to be?” And then finally, and perhaps most tellingly, it’s expensive. And so a lot of people are looking for ways to avoid those commitments or to soft pedal the commitments or to stretch out the commitments.

Everybody’s aware of the problem. So that’s a good thing. But I think that our ability to really deliver has yet to be shown. And so the trend is heading in the right direction, but probably a bit too slowly. We are looking to understand whether we can improve that.

I think we look at Europe and we see that there’s a lot of legislation that’s come out at the state level, country level, and we haven’t got that in the U.S. yet. We’ve got a little bit here and there. We’ve got some very smart and forward-thinking cities like New York, San Francisco, and Boston, who have come out with ideas and that’s going to help, but it’s probably not enough.

And the thing to remember about sustainability in commercial real estate is that pretty much 80 % of the buildings that will be around in 2050 are already here. So the key is really about retrofit, right? How do I change the existing building stock to be better? It’s less about the new buildings. Yes, we can make those good, but the key is, how do I make the current buildings better?

Raj Singh: So I think proptech’s a very broad statement, right? So it could mean a lot of things for a lot of different people. The way that we think about it is any technology applied to real estate. The one that’s interesting for us is commercial real estate, but in general, proptech could be anything.
The role it plays is it actually allows us to gather the information that we need. So up until now, pre-proptech, we’re guessing: we’re guessing what’s the embodied carbon in a particular building, we’re guessing how much actual energy is being used, and so on.

What proptech then allows us to do is to actually take sensors, use software, and deliver a much more accurate assessment of what’s going on, and that’s the first step.

And what I find happens when you think about technology is that you have a stated use case (that’s the reason you put it in), once you have that platform in, there are almost always many other things you can do. So I’m also looking forward to the unexpected dividends, the positive nature of the fact that, “Okay, we have that platform now. Oh, I wonder if we could do this or that?” Things that wouldn’t have been feasible before.

Highlights

JLL Spark portfolio companies providing sustainability solutions:

• EcoWorks: Based in Berlin, provides cladding around multifamily buildings, improving energy profiles without requiring residents to move out.

Key Challenges Identified:

• Tech Skills Gap: Many in the real estate industry lack the necessary technology understanding.
• Cost-Benefit Analysis: Aligning who benefits from technology with who pays is a challenge.

Future Outlook for Commercial Real Estate:

Raj Singh: Honestly, I think the future of commercial real estate is extremely bright. I know that we’re having tough times right now, but we will always need places for people to get together who share a common purpose.
I think that the demand for warehouses, distribution centers, and logistics hubs is not going away anytime soon. And actually, it’s hard to find great sites for these places, but everybody wants them.