(Bloomberg)—An arm of billionaire Tom Steyer’s investment firm Galvanize Climate Solutions will begin buying and upgrading property across the US this summer and fall, aiming to cut the portfolio’s greenhouse gas emissions to net zero in three years without the use of offsets.
“This is a real estate strategy with a decarbonization goal,” said Joseph Sumberg, the head of Galvanize Real Estate, who joined Galvanize last October from Goldman Sachs. “Capitalism will look at this successful strategy, and replicate it, creating ripples through the built environment.”
While Sumberg and Galvanize — a multibillion-dollar firm co-founded by Steyer and Katie Hall — declined to provide a figure for the size of the investment, Sumberg said it will be sizable and will focus on markets including the Pacific Northwest, Colorado, California, Arizona and Texas.
The plan rests on strategic asset acquisition, proprietary methods of retrofitting buildings and adding solar panels and the long-term payoff from assembling a portfolio of energy-efficient buildings.
“We’re trying to show that doing this is a good investment from an absolute, straight up financial point of view,” said Steyer. “The impact and the returns are linked; it’s not a trade-off. We are trying to create a new model for climate investing.”
Sumberg says Galvanize will look at buying student housing, self storage and industrial properties, including a focus on one-to-three-story, low-density multifamily residential properties that have surface parking, which can provide area for solar panels. Properties will undergo significant retrofits and solar installations to reduce their energy use and emissions.
The Galvanize real estate arm will get assistance from the firm’s in-house team of scientists and tech experts, called Impact. It includes scientist Howard Branz, a former program director of the Department of Energy’s ARPA-E incubator, and also seeks to fund startups to develop technology the team can apply to buildings and retrofits.
Sumberg described the approach as “investing in deals where you can achieve a certain risk-adjusted return while also achieving a decarbonization benefit.” Unless both criteria are met, he said, “we won’t do the deal. If we don’t get to net zero in three years, we forfeit those incentives.”
Greener real estate is both a necessity for hitting larger climate goals — buildings represent about a third of global climate emissions — and increasingly a factor in large investment decisions, following the rise of ESG investing and city ordinances that cap large buildings’ emissions like New York’s Local Law 97 and Boston’s BERDO.
Galvanize joins other companies and investors seeking to decarbonize American buildings at scale. New York City-based BlocPower, whose backers include Goldman Sachs and Microsoft Corp.’s Climate Innovation Fund, just raised $155 million and has already rolled out its energy retrofit model to over 5,000 apartments and buildings.
RENU Communities, a subsidiary of Taurus Investments Holdings, has a portfolio that includes more than 2,800 multifamily housing units. It does a 30-day review of properties — looking at the energy audit, conceptual engineering designs and existing infrastructure, such as energy panels and wiring — to evaluate if a pickup and retrofit is worth it, said RENU’s Chief Technology Officer Chris Gray.
There’s exceptional potential in America’s aging rental units, Gray says, since more than half of the country’s apartments were built before 1990. The opportunity to improve energy efficiency is “becoming a natural part of real estate valuation, and a required part of passing an investment committee,” said Gray, who sees a specialized ecosystem of firms eventually forming to deal with different aspects of building retrofits.
Even during a time of rising rates and uncertainty, Sumberg says there’s a first-mover advantage and that Galvanize will be able to choose assets that can be more profitably upgraded, thus avoiding edge cases and more challenging property types.
It’s not just apartments and offices getting attention from retrofit-focused real estate investors. Icon Parking, one of New York City’s largest parking companies with roughly 200 locations, was just acquired by its President and Chief Executive Officer John Smith and private equity firm Arkview Capital in a management buyout, and plans to install up to 2,000 EV Level 2 chargers across its portfolio.
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