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Highlights
Summary
In the next episode of the Future of CRE Sustainability podcast, our host Sean speaks with Raj Singh, Managing Partner at JLL Spark, to explore the evolving landscape of commercial real estate. They dive into the critical factors for evaluating property technology (proptech) startups, with Raj highlighting the importance of strategic alignment and revenue potential.
Raj also discusses the growing emphasis on sustainable real estate goals, addressing the challenges and opportunities the industry faces in adopting new technologies. He also shares insights on emerging trends, including the industry’s shift beyond traditional tools like Excel and the integration of advanced tech solutions.
Topics discussed:
- Strategic alignment and financial viability of proptech investments
- Sustainability practices and related challenges in adopting these new technologies for environmental impact
- Promising trends in commercial real estate technology and barriers to overcome when incorporating innovative solutions
- A startup’s ability to integrate seamlessly into existing business models and add value to client relationships
- Ongoing challenges and adaptations related to the work-from-home and hybrid work models
- Aligning incentives and benefits with costs when implementing new technologies in commercial real estate
- Political influence on strategic planning and decision-making processes within commercial real estate firms
Editor’s Note: This podcast used to be titled “The Future of Commercial Real Estate.” The name was adjusted in October 2024 to better reflect the focus on clean energy within the CRE sector.
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Transcript
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.
Narrator: Welcome to the Future of Commercial Real Estate, where innovation meets the built environment. Join us as we explore stories from pioneering professionals in the CRE industry, uncovering the strategies, best practices, and lessons learned that are shaping the future of sustainable commercial real estate. Your host throughout this journey is Sean Swentek, VP of Marketing at Omnidian. Now let’s dive right into today’s episode.
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.
Raj Singh: Pleasure; thank you for having me.
Sean Swentek: Raj, what factors do you consider when evaluating proptech startups as part of your role?
Raj Singh: So the overriding factor is whether we as JLL can be helpful. You might take money from Andreessen Horowitz, or Kleiner, or Sequioa, and you might do that for very good reasons in that they’ve been so successful. You would take money from us if we can deliver to you a distribution channel, i.e. can I bring you revenue? That’s always a #1 concern for companies that we invest in because we tend to invest in the series A stage, so revenue’s top of mind.
Now, I can do that – those other guys can’t. So the key consideration is one: can we pass your goods and services through our channel (can we make money from doing so? Can we bring you revenue?), and two: 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 is not going to be financially viable, they’re not going to be strategic because they’re not going to be around.
Sean Swentek: 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?
Sean Swentek: Do you feel the IRA has helped to break down some of those barriers and maybe speed up some of the progress?
Raj Singh: It’s honestly too early to say on the IRA. I think people are excited by the opportunities. When it was first announced, it was an initial rush of interest. Now the proof of the pudding will be in, “Can I do a project? Will the IRA actually kick in and help me?” You know that regulations tend to be quite arcane; you have to make sure you’ve got it exactly right. So I think that the IRA is potentially great.
One of the things I would say in my world, which is interesting, is that we see European startups coming to the U.S. because they want to take advantage of the IRA because there’s nothing like this anywhere else in the world. And so maybe that’s going to be good in the long term, but honestly, it’s still too early.
Sean Swentek: What role can proptech specifically play in sustainability and advancing that in commercial real estate?
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. So I think 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. What proptech then allows us to do is say, “Okay, now we know what’s going on. How do we control? How do we move the levers in a way that would allow us to reduce our carbon footprint?”
And actually, not just carbon footprint, right? There’s a whole bunch of things that go into sustainability, but carbon is what we’ve been focused on. So proptech is really the enabler for us to deliver on the sustainability mission. And, as I said, we’re kind of lagging, but there is an opportunity for us to be able to deliver if we can get that technology in. And as any person who runs a building or owns a building will know, it’s not just about installation, right? It’s about the maintenance, about the management, about the making sure everything is still working properly.
And so there are a lot of interesting challenges ahead, I would say, but prop tech is the enabler. Once we get the proptech in, we can then do a lot of things. 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. So enablement.
Sean Swentek: What do you see as some of the promising trends or even startups that CRE folks should be aware of whether it be proptech or otherwise?
Raj Singh: So we often say, we often joke when we think about proptech, that the number one competitor to proptech is Excel, right? So we pretty much run our industry on Excel. So I think what’s exciting to me is that I now see a bunch of startups coming who are going beyond Excel.
The thing about Excel is it’s very powerful, but it’s also, it doesn’t have any checks in it, doesn’t have any error checking in it. So people will do something, get a cell wrong here or there, and the whole thing ripples to a huge effect. And you never know!
What I see now is that people are delivering software that will allow us to automatically ingest data in a way that’s relatively error-free – there’s no human intervention per se – and then deliver insight that we didn’t have before. So the first trend, I think, that’s happening is that we will be able to run our buildings more effectively, whether that’s on a financial footing or whether that’s on the sort of commercial management of a building footing.
Obviously, we talked about sustainability earlier, the use of energy, you know, things like HVAC account for 40% of the energy use in a commercial building. So we’ll be able to control that better, as well. So the trends are that we are now starting to see startups addressing these issues. When we at JLL Spark think about what’s out there, sustainability obviously is a huge one, smart buildings – so that adoption of the proptech – is obviously another big one, as well, but there are other areas that we can focus on.
Another trend that we see pretty strongly is around financial services. Buildings obviously are great assets; they can throw off money when you do it right, but we as an industry haven’t really taken advantage of fintech, which is something that has affected other industries like commerce and retail and marketing and so on. There’s an opportunity for us to be able to take that. So what I see now is an overarching trend, which is people are starting to realize just how big an industry real estate is. And because they realize that, they’re taking solutions that they’ve developed in other parts of different industries and bringing those to the real estate industry. So that’s an exciting trend as well. So lots of things going on.
The one thing I would say, which is a caveat, is that we as an industry don’t have a strong technology understanding. So our base, we kind of have to catch up with other industries. So it’s all very well me saying to somebody, “Hey, I can bring you AI,” but what are you going to do with it? How are you going to actually take advantage of it in a way that will help you? And you need some skill sets to be able to do that. And I think that we don’t have as much of that as we’d like, in part because if you look at some of the salaries that you’d need for those people who are AI -versed, they’re pretty expensive people.
So, you know, we have a challenge that we need to meet. We need to be able to deliver the technology, but we also need people to be able to use that technology effectively. And that’s why I think another trend that we see is happening is the delivery of the technology as a service. So it’s not like, “Okay, here’s the software, here are the sensors, good luck.” It’s more like, “Okay, we can do these things and we can help you to deliver value from them.” I think that’s going to be increasingly valuable because people will recognize that they may not have the skillsets themselves and they’ll be looking for help.
Sean Swentek: What challenges do you see executives that these real estate firms facing when trying to incorporate these proptech solutions and how do they overcome those?
Raj Singh: I mean, I think the first challenge is the one I mentioned. We don’t necessarily have the tech skills. The second is thinking about who benefits and who pays. Right? So it may be that the occupiers of your building are benefiting from this new technology that you’re putting in, but you as a landlord are paying. Are you able to then bridge that gap between what you’re charging your tenants today and what you should be charging them to get a return on that?
So our structure as an industry, is a relatively old structure because we’ve been around for so many hundreds of years. How do we actually work with that structure such that we can make sure that the incentives and the benefits are aligned with the costs? So that’s a challenge that we need to be thinking about.
I think some of the ways that we think about how we manage the portfolio buildings that you might own or you might control, so right now, a lot of the decisions around what goes into a particular building will be at the asset manager level. Now, that might be fine because you’re actually measuring those asset managers on the return that they generate, but you have to probably start thinking about a more coherent and holistic way of thinking about your entire portfolio, because sometimes the benefits will be, “ALL of my portfolio is delivering standardized data that I can work with.” And so you’re now going up against how the industry works.
So we have a lot of challenges around technology understanding, around the structure, around the cost-benefit analysis, and I could go on, right? But we need to get those ones sorted out first.
Sean Swentek: Yeah, that split incentive dilemma is really prevalent in the industry and there’s some great work going towards that right now, which I’m happy about. What specific trends are you observing in solar and battery storage, and say EV charging, specifically? So renewable energy solutions, if you will, in commercial real estate.
Raj Singh: A lot of interest. I would say not as much activity because it’s a little bit hard, right? So EV charging, as an example, there are a bunch of companies out there that will offer you EV charging. But then where does the energy come from? Right? So getting more energy into the building… if you’re in California, for example, you go to PG&E and say, “Hey, I need more energy delivered to the building,” they’ll be like, “Yeah, we can talk about that in 2027. Not deliver in 2027, talk about it.”
Not to be down on them, it’s just very hard with the grid system that we have to deliver the energy. So yes, in theory… let’s say I can deliver EV charging: what does that bring me? Will that… we are all struggling with this work-from-home, hybrid-remote story. A lot of the people we talk to want to deliver EV charging because they believe it will make their building more attractive. So people will want to come back. We haven’t proven yet that that’s the case. It certainly does make it more attractive, but does it make it attractive enough that will change behavior of your employees or your tenants? And so there’s a lot of uncertainties there. And then in EV charging specifically, well, what type of EV charging am I talking about? Am I talking about electric bikes? Am I talking about EVs, light duty, heavy duty? A lot of different questions that you need to answer.
Then you need to think about, “Okay, parking, space… where will these things go? How will I charge for this? Who will be paying? Will there be subsidies?” The list goes on. So in renewables, I think that things like rooftop solar have been able to develop a bit of a presence. But even then, we have challenges. I think overall as an industry we haven’t quite worked this out yet.
I do think that there will be interest in other solutions. You mentioned batteries and solar, but I think hydrogen may well be an interesting alternative, as well, and so we’re going to have a lot of alternatives out there, but it will take somebody bold to take the first step; things, become a standard, and then that spreads. But, you know, we’re quite a way away from that.
Honestly, the number one solution for us as an industry is that the grid provides us with energy from renewables rather than us having to change the way that we do things.
Sean Swentek: How much do you think the long-term performance, return on investment, and the cost of care is the deciding factor in sort of the slow uptake for those renewable solutions?
Raj Singh: It’s a great question. I don’t know if I know the answer to that. I think that certain owners have a relatively short-term horizon. Their whole period is probably quite short, or at least that’s what they’re planning. And so for them, it may not make sense. But beyond that, I don’t really have a lot of insight.
Sean Swentek: No, that makes a lot of sense. Can you share some JOL Spark portfolio companies who are active in providing solutions and sustainability in real estate?
Raj Singh: Yeah, probably the one that comes most to mind is a company called EcoWorks. They’re based in Berlin, Germany. And essentially what they do is they’ve come up with some very smart IP about how you can improve the energy profile of a multifamily building. Essentially, what they do is they provide some cladding around a building. The advantage of this – two advantages actually – the first is that you abstract out the HVAC systems (the MEP) out into the wall, into the cladding itself. So future maintenance becomes super easy because you can access everything from the outside. The second advantage is that you don’t have to have people move out, so you can do all this work and people can stay in their apartments. So they’re doing great.
As I mentioned earlier, European countries have more regulations around this. What’s happening in Germany is that if you aren’t able to deliver the right level of sustainability performance, you will not be able to lease out your building. You’ll end up with a bunch of stranded assets and that’s obviously not what anybody wants.
And so these guys are able to give you a solution that works with the minimum of pain, and so it’s been phenomenal, and our hope is that we can bring them to the U.S. and do something similar here, as well. And because it’s kind of like an IP, if you like, that you could pass on to any GC and they could deliver for you.
So that’s a very interesting company. We’re actually looking at a couple of companies right now, not yet portfolio companies, that are around the sort of ability to understand what is your climate risk profile. So talking about a particular building you might think about where it’s located but then you might start thinking about, you know, is it in a flood plain? Is it likely to have tornadoes? What do we believe is the future prevalence of natural disasters, and therefore what’s the risk profile of that particular building?
So when you’re making a decision about a purchase, it’s not just the usual factors you take into account. You also take into account, “Well, okay, power for this particular building comes from this particular power station. And that power station has a risk profile that’s quite high.” Or we’re talking about rising seas and that that’s going to be an issue. So we think that’s going to be a very exciting way of doing things.
We have internally actually purchased – we’ve done some M&A – a couple of companies, one called Hank, that is a smart AI way of controlling your HVAC. I mentioned that’s like 40% of the energy consumption of a commercial building. So that’s now rolling out. People are finding that very useful. The ability to be able to take, let’s say, one side of the building has got sun, the other side is cool. Can you circulate air rather than trying to heat one side and cool the other, or vice versa to be able to save energy? Turn off the HVAC ahead of the time that the building’s going to be unoccupied? Turn it on early so you’re up to speed before people get there? And so on.
There was an article, I think it was last week, where JLL has made a partnership with IBM. They have a tool called Invisi, that can also help on the tracking and management of your energy consumption, so quite a lot of stuff is going on. Internally, we have a whole sustainability group – that’s not part of JLL Spark, that’s part of JLL proper – but we work with them and use software with them to be able to help building owners understand how to change the profile of their building.
So on a lot of different fronts, sustainability is like front and center. And actually, it’s not only a good business idea, it’s also in our interest because we have our own sustainability targets. And our scoped three targets include the customers that we work with. And so we need them to get into compliance so that we can be in compliance.
Sean Swentek: Good segue. What role do you see JLL and JLL Spark playing in helping to usher in more sustainability into real estate?
Raj Singh: I think, you know, our targets are science -based targets, right? So we believe in the science of how this works. I think the role we play is similar to what I said proptech was, is we’re an enabler. And I think we can do that in two ways. We can help you find your own solutions, or we can deliver solutions to you.
So the way that I think about JLL Spark and its role in this is that what we allow is we bring two different forces together. JLL’s been around for 230 plus years, okay? So we have a level of credibility, brand of trust in the marketplace. The startups that we work with are brand new, and we don’t know how successful are they going to be, is that solution is really going to work. But the combination’s really powerful.
So as a customer of JLL, we can bring you an innovation from a startup in the sustainability field, and you’d be like, ‘Are these guys going to be around in five years?” And this brand promise of JLL is that even if they’re not around, the startup’s not around, we will be around. You get the advantage of the innovation, JLL brand promise that we will be around, and JLL gets perhaps some service revenue around the implementation of that innovation. For the customer, you get the innovation and you get the brand promise. For the startup, you get the revenue, and for JLL we get the services. So that’s the way that we’re thinking about it.
So if we can advance that as a model in the industry I think that that’s really, maybe it’s not transformational quite, but it’s powerful.
Sean Swentek: Yeah, very. You’ve worked at a lot of important organizations and had a long, storied career. Is there an investment, a project, a story you’re really proud of that you want to share?
Raj Singh: It’s a good question and a tough question. I’m going to answer but sidestep a little bit. The thing I’m really the most proud of in my career is less about the projects and the investments, and more about the people. The greatest accolades I’ve had in my career are where somebody who’s worked for me or worked with me has advanced themselves and by doing so advanced the thing they’re doing, not because of me per say, but because of maybe every now and again a little bit of guidance, a little bit of advice, and I’m super proud to see all these people who went from being a junior person to their own entrepreneur to their own senior successful person. Somebody who started off as an analyst and ended up being a partner.
So I feel like my impact and the impact of a lot of what we do at Spark is helping people do their roles better. So that’s what I’m most proud of, when I see those people who may no longer work for me, right, but they’re out there and they’re doing great stuff because they’re in their career, they’ve profited from that relationship that we’ve had.
It’s 99% them, 1% me, but still, just being able to contribute to having people out there, that’s what it’s all about. Because ultimately, the technology doesn’t work unless the people are there to use it and deploy it properly. And so very proud of that over many, many years, too many to count, and really happy about it.
From an investment perspective, the investments that I do now, the ones that I feel are the most impactful, I feel like sustainability is so important for us as a race. Anything we can do there to advance that makes sense, so I’m really proud of it but it’s a bit too early to say that it’s gonna have that impact. I think it will, but I can’t take any credit yet.
Sean Swentek: How much does the political climate play a part in the planning at JLL Spark? Are you guys planning two very divergent paths based on what happens in November, or do you see the future as fairly consistent no matter what?
Raj Singh: We just have one plan, so it doesn’t depend who’s in the White House come January. Our plan is… the way that we think about is we believe that there are these macrotrends happening in the world, and those trends don’t change quickly, so no matter who’s in power, those trends will still happen.
Let me give an example. So one of the trends happening in our industry is we’re seeing owners that own more and more properties, right? There’s a consolidation happening. We’re going from this idea of like a family, has a few buildings here and there. That’s still there. But what we’re seeing more and more is like the Blackstones and the Alliances and the PGMs of this world who have thousands of buildings.
That trend is not changing. And that trend means you need technology. Maybe you can manage one or two buildings by yourself, but hundreds? Thousands? That’s really hard. I think that is a macrotrend, doesn’t matter what happens on the political scene – that’s going to keep on going.
Another trend is around the availability of labor. We know that there’s, like, more than 400,000 trade jobs that are out there that are not being filled right now. Part of that’s to do with immigration, and I guess the politicians can affect that to some extent. But it’s a really… you turn the dial, it takes years for things to change.
But the reality is that go to any community college out there, how many people are studying to be a building engineer, right? It’s not that many. And so we know there’s going to be a shortage of labor in our industry. There already is, and it’s going to get worse. And so again, how do you keep on going when you don’t have the labor? You turn to technology, to automation. Maybe it’s robotics.
Those sorts of macro trends, those are the fundamentals of why we even exist. I don’t think that a politician’s going to make a difference to that. I think that that’s just unstoppable. And so for us, one plan to try and meet that need and to make sure, from a parochial perspective, that JLL is part of that, right? That we are not caught short by the wave of technology crashing on the industry but that we can surf the wave.
Sean Swentek: What do you see as the future of commercial real estate?
Raj Singh: Honestly, I think the future of the 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. You could be any sort of organization, for profit or not, but you’ll always want to be able to get together.
I think commercial real estate will have to adapt in order to take advantage of that future. So it won’t be just about rows of cubicles, right? But it will be about places where people want to be because they want to collaborate with each other, they want to innovate with each other, and they want to build their own futures. Absolutely, commercial real estate will be right there, front and center, because that will be the place that we need to get together. As human beings, there’s no avoiding it.
I think we need to think about how do we change our spaces in order for that to happen, but I think that we will find solutions. Now that’s not to say that there won’t be some people that will unfortunately have issues. Maybe their buildings are going to prove to be too difficult to remediate. Maybe we’ll have an excess of stock and some people will suffer for that, but things will come back into balance.
Going beyond office, I think that the demand for warehouses and distribution centers and logistics hubs, this is not going away anytime soon. And actually, it’s hard to find great sites for these places, but everybody wants them. So on that side, I think I see a great future.
And then there are other trends that are happening in our industry, probably the most interesting one right now is data centers. Data centers are crazy. I mean, just the demand is… somebody told me the other day that the demand for data centers in the next three years is to add 50% of the current total capacity, which we can’t do. But a demand is there and AI is driving that in part. Cloud is driving that. So, you know, anywhere I look, honestly, the demand for commercial real estate is there. It’s up to us as an industry to take advantage of it.
Sean Swentek: Well said. Raj, thank you so much for joining us.
Raj Singh: Pleasure. Thank you. It’s been great.
Sean Swentek: It’s been incredible for me. Thank you all for joining us on the Future of Commercial Real Estate. We’ll see you next time.
Narrator: That’s a wrap for today’s episode of the Future of Commercial Real Estate. To stay ahead of the curve, visit omnidian.com and subscribe to our newsletter for the latest insights and strategies in the CRE industry. Thanks for tuning in, and we’ll see you next time.
