Galvanize Real Estate is betting that cutting carbon in buildings can be a profit engine, not a political flash point, Joseph Sumberg, head of real estate and managing partner at Galvanize Real Estate, tells GlobeSt.com. While critics of ESG considerations in buildings have grown louder, and many owners still see decarbonization as a technology cost that might eventually be repaid through lower lighting, HVAC and other energy use, Galvanize is turning that calculus into its business model.
As part of the global asset manager Galvanize, the real estate division focuses on climate improvement alongside economic opportunity. It uses decarbonization not as an apology for the estimated 40% of carbon emissions from the built environment, but as a way to make a profit. Sumberg, who has been in real estate investment for more than 20 years, including the last 15 at Goldman Sachs, says he moved for a chance to do “this niche thing.”
That niche is to buy properties, work toward decarbonization, improve the valuation of the assets and then sell them to reap the profits.
“Performance is everything, and you need to be differentiated,” Sumberg says.
“Not only could we engage in profitable decarbonization in an asset class responsible for 40% of carbon emissions, not only in a non-concessionary way, but we would do it was additive in an economically attractive way where it’s profitable and adds to the total returns of the perspective.”
He adds that he believes Galvanize is implementing the first dirty-to-green real estate strategy and notes that in the U.S., 22% of carbon emissions come from the operation of inefficient buildings.
Rather than selling the idea of a “moral imperative,” Sumberg says they have gone the green route “because it adds to the total investment in an accretive way.” They tie long-term economic incentives to achieving net-zero results.
“I’d argue we’re just thematic investors,” he says. “In a different world, we’d be thematic investors doing what everyone else is doing. It’s just dollars and cents. It’s good real estate investment. It takes more effort; it takes more expertise.”
Galvanize Real Estate focuses on three categories of change: energy generation, electrification and energy reduction. In a way, those efforts mirror what others in real estate might do to trim carbon footprints through net energy reduction, but the difference is a psychological switch.
“We do aim to get profitable, to get to net zero in three years or less,” Sumberg says, noting that the measures they take are intended to increase net operating income and, ultimately, higher valuations.
The strategy can also steer the firm in directions that might not seem obvious, such as seeking buildings that need roof replacement or are in areas with higher energy costs. A building that needs a roof often trades at a lower price, and higher energy costs can translate into bigger savings, making the eventual property sale more attractive.
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