Climate-Proofing Your Investments in CRE Sustainability

Anthony Romano: Commercial real estate is an iconic asset class. It’s here to stay. Everybody thinks of commercial real estate as downtown San Francisco or Chicago. If you drive around, everything is commercial real estate – the gym, the pub, the store, the school, the golf course, you name it. It’s such a big part of our lives and it’s not going away. I mean, I would just encourage more, particularly young, people who like finance and things of that nature, take a look at commercial real estate.

Sean Swentek; Hello everyone. Thanks for listening to another episode of The Future of Commercial Real Estate Sustainability. My name is Sean Swentek, your host. Today I’m speaking with Anthony Romano, CEO at CREtelligent. Anthony, thanks so much for joining me today.

Anthony Romano: Yeah, pleasure to be here. Thanks, Sean.

Sean Swentek: Starting off, if you had to bet one technology that’s going to completely disrupt commercial real estate due diligence the next five years, what is it and why?

Anthony Romano: I’ll tell you, the word I struggle with in that question is “disrupt.” And part of that is… I think I agree, as I’ve watched the last five years with CREtelligent and our client base and the adoption of new technologies and new data analytics. I think it will be “evolution” and not revolution, you know? So I don’t know about the “disruption.” I think the more these technologies get adopted – platforms for order management, platforms for location logic and micro market analysis, large language models and identifying certain asset classes and property types, faster – all of those things as they are adopted will bring efficiency to the commercial real estate space. I think in resi we watched some disruption, there were some disruptive technologies. I don’t know if in the CRE world that will quite happen.

Sean Swentek: Why did you create CREtelligent? What was the pain you were seeing in the market that you wanted to solve for?

Sean Swentek: I spent a number of years as an executive at CoreLogic and was with also First American in the mortgage solution side, and just watched how much capital had been deployed in residential real estate and residential lending and how sort of the transaction time was coming down and costs were coming down and the borrower experience was better. And there really was nothing like it in commercial real estate. And clearly in resi, ten deals and one in commercial, so much bigger transaction-based marketplace. But as you know, in commercial real estate, a lot more complexities, a lot more due diligence other than just a home inspection and appraisal… you have all the surveys and zoning analysis and environmental assessments and property condition assessments with cash flows out ten years and just a lot of due diligence and really challenging to get that done.

Sean Swentek: How is technology streamlining that due diligence process for commercial property transactions?

Anthony Romano: Yeah, just in our example, so if you think of a bank as an example, I’m going to do a $10 million loan on any asset class or property type. I’m going to have a processor post-loan application or somebody in credit admin. They’re going to pick up the phone or email a dozen different providers to get what underwriting needs to get a deal done. And so they’re getting proposals via email, they’re getting reports back via Dropbox. Those could be appraisals, it could be phase one environmental assessments, or ALTA surveys. A technology platform like, you know, CREtelligence Radius streamlines all that. You identify a property and then you can order, status, get deliver, and archive all of those services instantaneously on a technology platform. That’s really not been done in commercial yet.

Sean Swentek: You mentioned both lenders and property owners. Are there other client types that you’re serving with your products?

Anthony Romano: I think there’s ten different, what I call verticals. So certainly on the lender side: credit union and community bank and regional bank and national bank and non-bank kind of management bridge lender. But we do a ton with some of the largest publicly traded REITs in their acquisition and disposition teams. Owner-operators… got about 100 different law firms that are part of our customer base. And if you think about a real estate law firm’s practice, you could go read about it and it looks just like CREtelligent. They just don’t do the diligence, right? They use us to get all those things done. And those are largely portfolio deals. So it’s eight, ten, twelve, 30, 50 properties of any asset class. And so, yeah, the law firms are big clients of ours. And then specialty and property insurance who are putting policies on these assets.

Sean Swentek: You’re on the front end of the process of a lot of commercial real estate transactions. What are you seeing in the marketplace today? I know it’s been a rough year or more for commercial real estate. Are you starting to see any meaningful change in that?

Anthony Romano: Yeah – more. I think when I talk to particularly some of our investment clients and our REIT clients, when they look at their acquisition and disposition plans for 2025, they’re up. And I had just read a Deloitte study with 1,000 CEOs of commercial real estate executives: about 88% of them said their business and revenues and volumes are all going to be up in ‘25. So I think the hope is as rates start to continue to come down, the economy is still healthy, you’ve got so much uninvested capital on the sidelines that things start to move again. I think the banks, their credit box shrunk dramatically and I think that will open up. But you’ve seen the void filled by a number of non-bank, non-OCC regulated lenders in the commercial space that are playing. So we think ‘25 will be a pretty good year.

Sean Swentek: That’s good news for all of us. Anthony, what’s the most innovative way you’ve seen data analytics applied to CRE decision-making?

Anthony Romano: When you think about the notion of due diligence, let’s say you’re going to do an environmental assessment. Well, a phase one environmental assessment might be a couple thousand dollars, give or take, and it might take two or three weeks to get done. There are the abilities to grab environmental data sets and other types of property and micro-market data, curate the data, normalize the data, put it into a finished good report and that runs instantaneously. That doesn’t take the place, you know… an AVM doesn’t take the place of an appraisal, but it gives you a good indication of comps and values and market. An environmental prescreen report would give you a good indication of, “Geez, there’s a leaky underground tank. You know, the EPA was out there two weeks ago. I know that this is going to be a challenging transaction to get done.”

And so we at CREtelligent and our platform Radius, those are called early insight reports. And so using a myriad of really rich disparate data sources, bringing them together and putting them into a form that somebody can make a decision on early in a deal has been really a big efficiency gain for our client base.

Sean Swentek: How is AI revolutionizing, you know, environmental risk assessments and everything else that you bring to the market?

Anthony Romano: I think it’s early innings still in our industry. It’s funny, my wife was like, “Hey, is AI going to replace humans?” I think humans that use AI will replace humans. I think there’s a lot of efficiency. When I think about the way we’re building out, we’re working with a company called App Orchid. We built our data fabric. We’ve got a large language model, we’ve got data assets in there. For us, it’ll be a lot around property identification. So AI to me is a lot of questions and a lot of inquiries that you can ask and get answers to much faster.

So we had a client in South Carolina that said, “Hey, I’m building subsidized, you know, housing apartments and multifamily and to get the subsidy the lot needs to be this big. It needs to be half a mile from a pharmacy, a mile from a hospital, employment needs to be at this rate, et cetera.” We’ve been able to run through in about 30 seconds, you know, tens of thousands of properties and show them the 35 that fit their criteria. So that on the front end I think will be very valuable. That’s kind of client-centric intellectual content. I also think internally, when you think about a phase one environmental assessment that might take six, eight hours to write and review. There is a lot of tools that we’re deploying to improve the efficiency there and speed the process where you use the expert system, the human, after AI has done the brunt of the work.

Sean Swentek: What emerging environmental risks should commercial real estate investors be most concerned about, in your opinion?

Anthony Romano: Well, I mean, I think anything that impacts water, soil, or air vapor that can impact a human. Everybody’s concerned about in the, maybe not in the environmental world, but everybody’s talking about this glyphosate. Now you’ve got billions of dollars of lawsuits and that Roundup chemical is now tied to cancer and things of that nature. Any of those, you know… the classic, if you think of the NAX codes, right? There’s 1100 codes in North America that businesses get classified in. Fifty-three of them are environmentally sensitive, so think gas station and laundromat and things of that nature… manufacturing facilities. When you use and store hazardous materials, the reason you do an environmental assessment is to understand how that business is using and storing those materials so that they don’t leak into the ground, into the water, into the, you know, into the air, etc.

So those, that hasn’t changed in a long time. I think when you think about environmental, you think, you know, hazard and risk. The other side of it is conservation and sustainability. And that’s where this category of ESG and climate. And we watched how tragic these events have been down in Florida. I was seing this morning in Spain, they’ve had the horrible rains and floods and things of that nature. Climate and hazard risk is real and understanding, you know, if you’re buying commercial property and you’re going to operate, you’re going to put employees, not just chemicals and solvents, but what’s the risk of wind and fire and rain and flood and things of those natures? Those data and those econometric models are available today. We offer a lot of them. Those are decisioning points that clients need to consider.

Sean Swentek: Yeah, I was going to ask you, Anthony, are you able to help asset owners understand future climate change impact when it comes to site selection?

Anthony Romano: Yeah, for sure. I mean, we work with a number of partners. Cal Inmans’ company called ClimateCheck, they’ve got five- to 20-year econometric climate models across all of those different climate categories. None of them will be 100% accurate, but they’re very good at looking at, you know, historical precedents and predicting some future events. A number of insurance companies and large REITs and owner operators look at that, you know, look at that data. I think ESG as a category was going to be such a big deal. The SEC kind of waffled on it a little bit. Very expensive for businesses to implement. But when it comes to hazard and climate risk, those are things I think clients can get their arms around.

Sean Swentek: How are you seeing these owner-operators future-proof against that risk?

Anthony Romano: You know, a understanding/eyes wide open of what they are in those particular markets. And if you want to be there, those are… it’s insurance policies, it’s fortification of buildings, it’s moats and, I mean, it’s really thinking about what could go wrong over this period of time and how do we ensure to the best of our ability that we’re protected from it. It’s just like the insurance companies for homeowners in California. They left in droves because it’s crazy. The claims are sort of nuts. And so I just wonder in some of these markets that continue to get hit and impacted if there’s just not a fleeing of folks moving to other sort of higher ground, so to speak.

Sean Swentek: With all the recent climate change related impacts and storms and things like that you’re seeing, energy access is like a huge important aspect of running a business and you know, for residents, of course, as well. Are you seeing an increase in asset owners like looking at renewable energy or microgrid solutions that sort of protect themselves and have the source of energy they need to continue their business?

Anthony Romano: Absolutely. And I think there are a number of partners out there. When you think about, sort of, carbon footprints and offsets and other sustainable forms of energies, there’s a whole bunch of companies in the last three years that have popped up to try to address this issue and work with owner-operators and REITs of that nature. So yeah, I think that’ll be a continuing trend for sure.

Sean Swentek: Anthony, how are geospatial intelligence tools transforming site selection?

Anthony Romano: In the residential world, when you think about 140 million residential properties and for the most part everybody’s got an address. In commercial, it’s very challenging. When you look at property boundaries and adjacent parcels and contiguous parcels, it’s always been a bit more challenging and commercial. But I think the punchline into your point is there are geospatial tools. We work with a company called Regrid that does a great job on our platform Radius, and the identification of boundaries and understanding parcels and lots and how that looks. And often it’s vacant lands and corners of properties and crossing, you know, highways and freeways. And it’ll never be an exact science, but it’s improved just dramatically really since CREtelligent, you know, five years ago started. It’s improved dramatically.

Sean Swentek: What do you believe to be the most effective strategy for balancing speed versus accuracy when it comes to due diligence work?

Anthony Romano: I think if you think about doing it over a large scale, so nationally, which is what we do, you have to have a really good mix of senior, experienced, qualified, in-house, W2 folks in either of these categories. Could be appraisal, could be environmental professionals, could be land surveyors, could be certified building inspectors, engineers, et cetera. But then you’ve got to have a really robust and dense panel, a network, right? If you’re going to go do all of many of the things that we do require… a sitewalk, right? You’re on site, you’re taking photos of subject and adjacent, collecting data in each of those diligence categories. And so to be able to do that, you know, at scale and at speed, you’ve got to have both in-house and panel.

And you’ve got on that panel, you’ve got to, it can’t be, you know, anybody that can fog a mirror. You’ve got to get their, you know, their licensing and you got to do background checks and you got to build their competency and you got to score them based on their work. And so very much like an AMC, an appraisal management company, that’s a lot of what CREtelligent does is we’re going out and doing nationwide, you know, commercial real estate due diligence. I think the balance of those things is super important. And then having, you know, automation and process around QA and QC prior to any of those reports ever getting to a client is super important.

Sean Swentek: Are you seeing clients asking for support around QA/QC or inspections of renewable assets? Are you seeing them acquire buildings that have a solar array on them and saying, “Hey, I need to understand, you know, how this affects this property’s value and how if it even operates correctly”?

Anthony Romano: Not as much in our space. I mean, maybe that’s because of the type of asset classes and property types, but not as much. We do see sort of off-cycle or non-transaction-based property inspections that we do for a lot of these clients. We do lately a ton of zoning and use analysis as people are reimagining property types and we’re taking an office and putting multifamily and retail down below and storage in the back. And is it zoned appropriately? That has nothing to do with the transaction. So we’re seeing more of that for sure.

Sean Swentek: What key strategies have you found effective? CREtelligent’s been growing leaps and bounds like you mentioned to me earlier. What have you found effective in driving revenue growth for tech platforms in the CRE sector?

Anthony Romano: I think just the exposure and awareness of “these things are available.” I did a demo this morning for a prospect that one of our reps was involved in, and gave a quick overview and then demoed our platform. And the overview is ten minutes and the demo is ten minutes, right? And literally at the end the guy’s like, “How much does this cost, man?” And I was like, “Why? And… not very much.” And he just said, “Look, there’s nothing like it.” If you contrast the way a firm does what we do with how we do it, it’s just unreal. So to your point, you got to get out in front of people and make them aware that this exists, right?

And when you’re in early stages and, you know, your venture capital and private equity, but you don’t have all the capital that you want to go loud and as proud. So getting people to raise their hand and say, “Hey, that sounds intriguing. I’d love to have a call or a meeting” has been… was earlier the challenge. Now we brought all that multi, sort of, omni-channel demand generation in-house and we do all of that, you know, in each one of those verticals. So we have a whole influx of leads. But I’ll tell you, what I would call our close ratio is dramatic because people just go, “h my gosh, I didn’t know that exists.”

Sean Swentek: As you look ahead to the future, what’s the one piece of advice you’d give to CRE professionals when it comes to future-proofing their decision-making processes?

Anthony Romano: Read Sam Zell’s book. I just read it for like, for the third time. It’s called Am I Being Too Subtle? And I think commercial real estate owes so much to Sam Zell, and creating the REIT and providing liquidity and making it a real investment. I think you gotta be a grinder in commercial real estate. From the very outset of a broker to the lender, to acquisition departments in these groups, commercial real estate is an iconic asset class. It’s here to stay. Everybody thinks of commercial real estate as downtown San Francisco or Chicago. If you drive around, everything is commercial real estate – the gym, the pub, the store, the school, the golf course, you name it. It’s such a big part of our lives and it’s not going away.

I mean, I would just encourage more, particularly young, people who like finance and things of that nature, take a look at commercial real estate. It’s an industry that has a great reach. It’s a big impact on our GDP. There’s five, six million people and growing employed in this industry. It’s an awesome industry.

Sean Swentek: What do you think the future of sustainability in commercial real estate looks like? What trends do you think will continue to accelerate? And do you anticipate anything coming out of right field that we’re not even talking about today?

Anthony Romano: No, I think, you know, I think the notion of, you know, fossil versus renewable and carbon footprints, I mean, nobody’s going to meet the 2030 number that no nation, no business, probably. But it’s not going away. And we’ve seen the impact of climate change and things of that nature. So renewables are real, solar is real, wind is real. You know, reducing carbon footprint, whether it’s with offsets or things of that nature, I think that will continue to be super important. And if you look at, you know, private equity and venture capital, where those investments are, it’s in that category and in AI as it relates to, you know, commercial real estate.

Sean Swentek: Yeah, I think we’re only going to continue to see AI integrate in every aspect of CRE and sustainability. Hey, Anthony, if people want to follow up with you or CREtelligent, learn more about what work you’re doing and inquire into working with you, where’s the best place for them to go?

Anthony Romano: Yeah, they can go out and get all our information on our LinkedIn site, CREtelligent LinkedIn site. Or they can go to www.cretelligent.com. And we’ve got everything we offer, all of our reports, all of our services and all of our contact information there.

Sean Swentek: Amazing. Anthony, this has been a pleasure. Really nice to meet you and great to speak with you today.

Anthony Romano: Yeah, thanks so much, Sean. Appreciate it.

Sean Swentek: Thank you all for joining us on another episode of The Future of CRE Sustainability. I’ll see you on the next episode.