IBM’s Approach to Sustainable Real Estate Just “Makes Financial Sense”

Frederico Egli: Everything that we build tends to be certified and with the strict regulation of our procurement team, as well, to work with the proper suppliers. But at the end of the day, I think what’s most important to address climate change is having a more intelligent portfolio, not only on energy consumption – so what’s the type of energy we’re using and how can we use/our infrastructure can use less energy – but mainly have, when I say an intelligent portfolio, normally it’s smaller portfolio.

Sean Swentek: Hello and welcome to another episode of The Future of CRE Sustainability. I’m your host, Sean Swentek. Today I’m speaking with Federico Egli, Head of Real Estate at IBM. Frederico, thank you for joining me today.

Frederico Egli: Thank you for having me.

Sean Swentek: Can you tell us about your journey to IBM and the Head of Real Estate role and maybe what initially inspired you to even begin to work in the commercial real estate sector?

Frederico Egli: I actually did not study real estate at the beginning. I was, I majored… okay, going a little bit back. I’m originally from Brazil, just for everybody to understand my different accent and sometimes lack of vocabulary. So you, if you excuse me, sometimes you’ll have to help me here. But anyway, I’m from Brazil and I majored in advertising, and I started working in advertising agencies back there. I can’t explain it, what happened actually… so those are things that happen in our life, right? I was tired of the advertising world and I saw this position to work at Walmart in real estate, not knowing exactly what it was. So went through the whole interview process. They bet on me, I bet on them. I’m not sure why.

It paid off at the end for both of us, I’m assuming for both of us, but I actually started working with them for their expansion department. So building new stores starting with the São Paulo region and then growing nationally. And real estate for retailers was more focused on expanding or opening new stores rather than focusing on the office side. And that was my school at Walmart in Brazil, growing different type of stores there. After that I moved to another retailer called Grupo Pão de Açucar in Brazil that was acquired by a French company called Groupe Casino. And in 2017 I joined IBM in Brazil and I was leading real estate for Brazil, then Latin America, still based in São Paulo, Brazil.

And then in 2022 and of middle of 2022, I was invited to come here to the U.S. to lead the east portion of the portfolio. I moved here by the end of 2022 and then after some reshuffling of our team, I’m now leading the entire U.S. with the exception of our headquarters — that is a different beast, and we have this area… we have a person just to lead there for the headquarters. So that’s the summary of my journey with real estate and how I came to U.S. to work for IBM here.

Sean Swentek: IBM is considered a leader in the corporate world when it comes to renewable energy, sourcing renewable energy, investing in sustainable initiatives. How are climate change and sustainability directives impacting the real estate decisions you make at IBM?

Frederico Egli: First of all, I would separate this in two. Our construction, everything that we build tends to be certified and with the strict regulation of our procurement team, as well, to work with the proper suppliers. But at the end of the day, I think what’s most important to address climate change is having a more intelligent portfolio, not only on energy consumption – so what’s the type of energy we’re using and how can we use/our infrastructure can use less energy – but mainly have, when I say an intelligent portfolio, normally it’s smaller portfolio.

So everybody’s aware that we have, and this is not exclusively for IBM, that we have a lot of vacancy today after the pandemic. So how can we turn three offices in one and consolidate our operation in just one location? This will help way more than environment, than a lot of construction initiatives or even energy consumption initiative, because with a smaller portfolio we have then to build less or a developer to build less. So at the end of the day having this balance on what we actually need in the future, it’s not only good for the environment but also good for the health of our company, financially speaking. Because at the end of the day we will have better locations but maybe costing us less.

Sean Swentek: I love that you brought up the difference between new build and sort of retrofitting or driving energy efficient efficiency in existing buildings. I was just talking with Raj Singh at JLL recently and he was mentioning that if you look at the year 2050, which is when a lot of these sustainable goals are trying to be reached, 80% of the buildings already exist. That will exist, so the opportunity is to make those buildings more efficient and better for the environment.

Frederico Egli: Yeah, and I will give an example that this is public already. We were planning to… not we, but we are partnering with developer to build a new office in Austin, Texas. And after some discussions here with the developer and with our leadership, we end up changing our plans and now using, not using, we are moving to a building that is vacant. It was there already that Meta left, and now we took the space to build our new office there. That will also be a consolidation for our operation in Austin. So trying to get the best of both worlds, consolidating and also trying to use an existing space for us and everybody, everything, it’s kind of working together. Not only this is less expensive for us, it’s quicker for us to be there. And then to your point, it’s environmentally friendly.

Sean Swentek: There’s a lot of investment in today’s world in data centers. How do you see companies meeting that need for energy to power those data centers sustainably?

Frederico Egli: We are seeing a lot of new data centers that will have to use a lot of energy, for example, for quantum computing, right? This will consume a lot of energy and they have to go to clean sources. But it’s good that they will have this choice right now because they request so much energy that they will probably have to have… If you’re building quantum campus, for example, like they are building one in Illinois right now, they will probably have something that they would need to build just to provide energy to them. So it is the right moment for you to make this choice on, “How can I provide this amount of energy in a clean way to this type of operation?” You still have not clean energy circulating around, but since you’re going to have something dedicated for you, you will be able to make this choice then.

Sean Swentek: Frederico, what’s an unexpected way that you’ve seen technology influence commercial real estate decisions that are made today around how to invest sustainably in the built world?

Frederico Egli: We have a lot of data right now that’s being provided via technology that will help us to be more sustainable. To my point earlier, I think that the biggest help that we can do is have the right size portfolio for you to be environmentally friendly. To do that you have to rely on data. And there’s a lot of technology right now in IoT that will provide you this data with sensors. Or you can still use the old model bed reader, but this will provide you maybe heat areas that will show how much your building is used or not used in which areas that the building is using more, like meeting rooms instead of workstations. So you will be able to provide this solution to a better building, more efficient building in the future.

But the next step right now, it’s using artificial intelligence to get not only your insight on this, but you will be able to gather insights from the market. Where do I have cheaper energy, where do I have best talent, where do I have lower construction costs or environmentally friendly construction companies? The AI will be able to cross all this information and then provide you with a better solution for your portfolio in the future and more sustainable. So I think this is the next step. A lot of companies are experienced with AI – not only IBM, it’s working with that. But I talked to other peers of mine and we see a little bit of the implementation of AI in different areas in transaction and construction. But we still need to see this, everything on those words combined to actually have then a more robust product.

Everybody now is trying touch a little bit on this artificial intelligence to help us define what’s the better solution with all those data, that data that we are gathering.

Sean Swentek: How are you adapting your office spaces today to better meet this hybrid work model that we’re existing in today to foster collaboration or create a better work environment?

Frederico Egli: IBM has a team on the designers and space planners that build personas, create personas with the business units to define how, what’s, what type of space will they need. But if I can summarize this to you, I think after the pandemic, as I mentioned also before – not only with IBM, other companies are struggling with access of space – but when you look at brand new office, or I will not say even brand new offices, spaces that have a more modern design, open spaces, what we are seeing is that sometimes you don’t see a lot of people using the workstations.

But if you are trying to book a meeting room, it’s more difficult because the tendency right now is for them to get together for a specific purpose, to do a meeting, to meet a client, or to be together with the team making a specific decision, working on a specific project. So we can see that this is shifting for an environment that we will still have to have workstations, especially for technical positions like software engineers. But you will see that people are getting to the office to use this in a more common way, on having those meeting rooms and being together instead of just working by themselves. At the end, if you see the logic of this, if you need to work by yourself, you can stay working in your house. You don’t need to come to the office.

So our goal is to have a purpose. So this office, the purpose is to get the sales team together with the clients. This other office will be for consulting, to have a lab and discuss new technology. So we are seeing that it’s important for a space not only to provide free snacks or food trucks or any type of amenities, it should have a purpose at the end of the day.

Sean Swentek: IBM has a significant international footprint. How do you go about balancing cultural diversity while you’re creating these unified workspaces that people can experience globally?

Frederico Egli: I will tell you that I can speak clearly about U.S., but since I talk to my peers in other countries, the more we evolve in our design for the future of the workplace, the more we see that we need to leave room for local inputs. Meaning that instead of having a hard, standardized model that I can apply everywhere, we have guidance that will dictate more things related to…

Sean Swentek: Ergonomics?

Frederico Egli: But also branding. Those things need to be there for the health and safety of our employees, but also for you to understand that you are at an IBM office. But there is more margin now for local inputs on how they want the space to look. And also you need to understand which specific business unit is operating in this location. It will look very different when you have sales and consulting team using a space that will probably need more meeting rooms or they will be in a lot of times with their clients. So the ratio of space that you need for them, it’s smaller than if you’re talking about a technical team that needs to be there 24/7 and needs one-to-one ratio in terms of seat and not in meetings a lot. They are in their own world doing code programming.

It’s a different approach for different cultures, but also rich business units. And I’m bringing this because you will see the distribution of IBM. Some countries you have a heavily presence of technical workers. So you will see a bigger footprint because at the end of the day they need the team to be there and they need one seat per person. So it’s different. But I think to answer your question, we have this margin for local teams to have their own inputs.

Sean Swentek: I love that global support. But thinking locally, that’s beautiful.

Frederico Egli: And just to complement this question, working for IBM for quite a while, I don’t know, quite a while… people here, probably they work here for 25 and 30 years, and I’m here since 2017! But what I noticed is that you will see that the portfolio is evolving. And even if we are consolidating, it’s still a big portfolio. Only in U.S., we have 15 million square feet. So it’s difficult for you to standardize your entire portfolio if you are already migrating our new offices to a new standard.

So it’s an illusion for us to think that every office, even if in the same country, will look the same because you have different ages of the building. Those offices that were built in the ‘90s and then we have the new offices, they already look different. And it’s impossible for us to renew the entire portfolio at once because we are still too big. Maybe in the future, if we are consolidated in a few offices, maybe this will be feasible. But today it isn’t.

Sean Swentek: As you look across your real estate portfolio and all the renewable investments that have been made, how do you think about managing all those sustainable initiatives? What is the process that you even take on to manage these really unique properties across the portfolio?

Frederico Egli: That’s the advantage to work in a company that we have a department just to do this. So once implemented, then we have to figure out how to maintain this. And then we have a specific department that’s looking at this. And not only that, since we are IBM, it’s reporting this on annual basis. We need to have continuation on all the initiatives that we propose to do. And again, coming back to the more intelligent portfolio speech, the more concise will be our portfolio in the future, easier for us to control all those initiatives. And from the other side, there’s a lot of voluntary initiatives as well.

So I will give my example. When I was in Brazil, we decided to build green garden on the rooftop of the headquarters for Latin America in Brazil. And this was an initiative not from real estate, but from real estate employees that went there. We subsidized this and then were helping not only the environment, but also families that were working in this green garden, generating every harvest… we harvested 100 kilos of vegetables at the time. But it was something that IBM incentivized at the time, but in a voluntary basis that we did this. So you have the corporate machine that helps us do this because that’s one of the IBM goals. But you have also the voluntary work of employees that also help to do this.

Sean Swentek: It’s beautiful to hear you talk about the way you give back to the community, and there’s so much social ROI (return on investment) in ESG activities, right? Are you seeing true, meaningful financial return on investment as you transition to more sustainable energy sources for your buildings? Is it making dollars and cents to make these buildings more efficient and use more sustainable forms of electricity?

Frederico Egli: I would say yes, but I think it’s too early to say. I think we need more time and use more of the sustainable energy and again, having this more intelligent portfolio to actually see this change. But I think the more we use it, the cheaper the technology gets. As an example, again, when I started looking at solar panels to help us with some operations back in Latin America, it didn’t make sense financially speaking at the time. But now we are seeing that the technology is cheaper and we are able to do so.

This is not new news because you can see this in electric cars. This is a tendency on the more we use, the more cheaper it gets and the more efficient it gets. So I think in the future we will have a more concise data to analyze this. Truth be told, it’s very difficult to convince sometimes CFOs that this is a good idea, but at the end of the day, I think it will make financial, sense as well.

Sean Swentek: Yeah, you raise many good points there. One of my recent guests was Kevin Berkemeyer at Station A and they do what you just talked about. They go and try to convince the CFO of the financial benefit. And he said five years ago it didn’t pencil for a lot of properties, it just… that was the reality. But with the like, massive reduction in cost of equipment and the increase in cost of energy overall, something that didn’t pencil five years ago, all of a sudden it pencils today. And so it’s great that you guys are staying on top of that and continuing to analyze your portfolio to see what makes sense.

Frederico Egli: And there’s a lot of new technology. Again, I’m not an expert on energy but we are hearing even nuclear energy people analyzing or studying if they can build smaller power plants. And I know there’s a lot of resistance, but there are some that defend that this is one of the cleanest and more safe type of energy that you can provide and you need less space. But my point is that there’s a lot of new technology coming and the technology that we already know that exists for clean energy, they are getting cheaper and more efficient.

Sean Swentek: As you add these renewable energy solutions to your buildings, how are you approaching the service and maintenance and performance of these? Is it continuing to build a stronger in-house facilities team to manage these? Do you have to look outside? Is it technology enabled? What do you use to drive the sort of… the maintenance and ensuring these assets actually perform?

Frederico Egli: We work with big companies to provide the facility service for us so they are prepared to do so. I think this question maybe should be a better question for a smaller company then they will have to specialize on this. But our service, since we have again a big portfolio, we used to work with the biggest service providers in terms of facilities and they have this knowledge already. Yep, that helped us a lot.

Sean Swentek: Fair enough. What’s been your most successful approach to reducing a building’s carbon footprint?

Frederico Egli: I think I will have to come back to portfolio reduction because even if I’m talking about some certificates that we won or during the construction site, I think having portfolio reduction will be the most impactful way for you to generate a better carbon footprint. So I will give you some examples, and this is not exclusively for me – part of the team that worked in New York for the consolidation there deserves all the credit. But we shrunk from 15 or 12 offices to just one that was recently inaugurated this year.

So I think this is not only from the construction side, because those sites were ready, but also from the operational point of view. It’s we are basically closing a lot of square feet to just consolidate in one location again with a purpose. It’s a completely modern, different office with a specific person on gathering with clients and partners. I’m glad that because then this turns out our job to be very dynamic.

Sean Swentek: What’s the unconventional prediction you have for how workspaces will evolve by 2030?

Frederico Egli: I think the unconventional part of this is that first of all, offices won’t, and this is a personal opinion, okay, but I think offices won’t look the same as they look today. We should start defining the specific purpose of one location. It’s not, “I have an office that people will work there,” it’s, “I have a space that will increase 50% for sales because it’s close to a client. We are inviting startups to be part of this environment.” So instead of just having an office to allocate a team, the team should go there for a specific purpose. And that’s a conceptual change because how you will configure the space is completely different. If you’re there to explore a new technology, then you have to build a lab (that we already have).

But then this will be the specific purpose of this mission, if it’s developing a new technology and sell it. So then you have to have the sales component. And how can you attach this to this office? How does sale team behave versus engineer? And you have to combine. This, I think, will be a huge change in the role of the real estate team. I think we will change as well. So now we are just looking for real estate, so the layout portion, the finance portion of it. How can I maximize value in an asset? But I think in the future we’ll have to have mix or work together or maybe be only one department with marketing and HR, because it will be us looking on the purpose that I mentioned, but also for the employee itself.

So how can I combine what the business unit needs and what the employee needs with the real estate portion? And I think we’ll have to have somebody with HR knowledge to attack the portion of the employees and how employees are behaving and what’s right for them in terms of health and safety. But also a huge connection, and I say marketing but maybe it’s some other areas within the business units, to understand what are their goals, what do they actually do? Sometimes we don’t even know what the business unit is doing. And now we need more than ever, we need to understand what they are doing and what are their goals? So we need to activate the site.

So when I say marketing, it’s like I’m bringing this business unit to the office, but I will bring then another client or I will bring another company that I have contacted. And we are developing the same type of product and we can exchange ideas. So you have to have the look to the business itself more profound than what we have today as real estate professionals.

Sean Swentek: That’s beautiful. What is one change every company could make today to significantly improve both their real estate strategy and their sustainability efforts?

Frederico Egli: This will sound weird, but I think we need to listen to our employees. Because employees and also hearing their side of the story, how can we improve productivity and be more client-centric? Because sometimes we are making decisions – and again, I’m not speaking about IBM specifically, I’m speaking about what I’m seeing in the market – sometimes we’re making decisions that has a different background or a different reason why we are doing this.

Let’s say it’s a financial decision or I have a lot of real estate committed already. So I need people to come back to the office because I have all the space that I’m committed. And this is causing struggle with some employees, again, not speaking about IBM specifically, but in general. And we need to start to listen to their side of the story to understand what’s better for the future.

Sean Swentek: I always ask my guests, what do you believe the future of CRE sustainability looks like?

Frederico Egli: Look, I’m 46 years old, I will try to do a better world for my kids. But I think the real actors of this change will be the next generation because they are suffering already the results of what we decided to do in the past. So they will be kind of obligated to do this. They will not have a choice, right? Because they will start feeling… we are feeling this right now. But again, I think the new generation will be the one that will be tackling this in a more strong way, I think.

I don’t know about you, but look, environmental speech was always part of my recollection when I was a teenager, but nobody was paying too much of attention. It was more like something that you can put in a report and nobody knew what the actual impacts will be. We had some analysis, but now we’re seeing it. And I’m not saying that for me it’s too late, because I still hope to work for a long time. But I think the new generation will come with more… a will to do this. Stronger than ours. And I’m saying ours supposedly that you have the same age as me, but I think we’ll have to count on them to do this. Companies are concerned about this and we are doing a lot of things, but I think they will come with more strength to make more changes.

Sean Swentek: The time for change is now, and as a father of two young daughters, I agree. They are going to be a big part of that goes into saving this planet in the future, and I’m excited to see where they take it.

Frederico Egli: Yeah, because again, we are seeing this change. So we had the opportunity to see the before and after. But they will start living in this chaos already and hearing about how things were in the past. I think they will kind of force to move in a path for more drastic changes.

Sean Swentek: Frederico, this was an absolute pleasure. Thank you for joining. If people want to learn more about IBM and your efforts on the real estate and sustainability side, where’s the best place for them to go?

Frederico Egli: You can go on the IBM website. If you want to reach out to me directly, I can send you my email and they can reach out to me. I’m not the person that will answer all the questions, but I can surely find someone at IBM that will answer all the more specific questions.

Sean Swentek: Well, you answered a lot of them today. Thank you again for your time and thank you all for joining us for another episode of The Future of CRE Sustainability. I’m your host, Sean. I’ll see you on the next episode.