Real Assets. Real Expertise. Episode 1

Episode 1

Stephanie Workman, Senior Manager, Real Estate Services, followed up her interview, originally intended for MIPIM, with Chris Carter Keall, Chief Investment Officer at LifeX Aps.

Chris discusses what he thinks about the social dimension of sustainable development, building communities and the improved quality of urban living.

You can listen to the full podcast by clicking on the listen button below or going to Spotify.

Click here for the original interview.

Transcript.

Narrator: Welcome to real assets, real expertise. A podcast brought to you by Crestbridge. It's the place where we explore the world of real estate. Introducing your host Stephanie Workman. You're listening to real assets, real expertise.

Stephanie Workman: Earlier this year as part of our 2020 MIPIM campaign, we invited Chris Carter Keall, chief investment officer at LifeX Aps and founding director at CK Real Assets, to interview and discuss with us his thoughts on the social dimension, sustainable development, building communities and the improved quality of urban living. Before it was cancelled, this year's theme for MIPIM was ‘the future is human’. A lot of the points wrote about in Chris’ original article still hold true, but we've invited him back to speak with us and reflect on some of the themes from the original interview, providing an insight and some of the matters brought forward in light of COVID and the new world in which we find ourselves. I hope you enjoy.

You participated with us in a Q&A style interview, for our MIPIM campaign, which obviously didn't go ahead in the end but reading back through the comments that you made a lot of it still holds true. A lot of the questions that we put together today have been in reflection of the comments that you made in your interview. Have you seen any acceleration on ESG matters or trends as a result of COVID?

Chris Carter Keall: Yeah, I mean, I think it's a really good follow on. I mean, as we discussed, the article was written in February, which was some time ago, and I think the quote that I’ve been hearing a lot at the moment is from Lenning which basically says, ‘decades have nothing happening within them, sometimes weeks have decades happening within them’, and that's what I think we've seen since I wrote the article. So, it's fair to say that COVID has had a massive impact on all things retail and office and obviously real estate has also seen some massive changes in terms of how people live and what effects COVID will have on it. I think to bring it to the ESG sustainability piece, you know I think COVID, again, has a significant impact on both of those. The level of stimulus that's been put in place by governments since COVID erupted, has basically been unprecedented. For example in the Eurozone the monetary stimulus is 30% plus of GDP and that's something, like with the global financial crisis we didn’t see anything like that, so I think with that sort of fire power to bring to bear we're going to see an enormous change in the way in which human and sustainability goes forward. I mean I think the other things to say on that are that we're gonna see a massive look at resilience because operators and occupiers need to have resilience within their portfolio of assets and that awareness of the impact of the climate crisis or some other viral crisis is going to make an important change in the way in which people occupy their spaces. Secondly, I think you know mindset and behavioural changes that have occurred during corona virus are also going to impact on real estate, so working from home for example, how are people going to operate their businesses now incorporating a significant proportion of working from home, deliveries through the internet I mean again that was always something that was growing significantly, but the human interaction it is, obviously, something which people have been avoiding a lot in the last several months, so logistics and housing have been the two winners of the real estate corona virus way forward so I think those are the main focuses for real estate post-COVID.

S.W: How to balance ESG and infrastructure investment post-COVID, do you have any thoughts on that one?

C.C.K: Well, again pre-COVID, we were talking about the world's population being very much city based. You know, by 2030 we're gonna have something like eight billion people in the world, sixty percent of who will be city dwellers so I wonder where that has left, in terms of infrastructure going forward, are people going to want to be in large scale multi-million people cities, how are they going to deal with social distancing? You know, we’ve seen on the news in the past few days how the tube, in London, how that is able to operate, or not, with social distancing. I think, you know, the United Nations have also been thinking a lot about sustainability and how they can reach their sustainable development goals. I mean they set these out and they reckon that in order to reach their goals, they're going to need something like sixty trillion dollars of energy related to investment by 2040. So you got the balance of the large scale cities, whether people actually want to live in them, the environmental factors, as I mentioned previously, in terms of how you build resilience and also the way in which we can keep climate change to an acceptable level. You know, ultimately, the environmental policies that take these elements into account are still not sufficient to achieve the 1.5 degree goal. So how do we, where do we place our bets, in respect of ESG, and where do we place ours bets in terms of infrastructure? So I think those, I don't have the golden bullet at this point, but I think those are the factors we need to think about. Real estate, in terms of where it sits within this, more than half of the sixty trillion dollars envisaged investments will be in real estate and real assets there will be renewable energy generation, power distribution networks, transport & buildings all need to be invested so that gives an opportunity for investors to find alternatives and alternative investment classes have been the largest growth area of real estate and will, I think, continue to do so. The problem, alternatively, is that we don't have the data, we don’t have the data sets from offices and retail, that investors can get comfort from, so I think we need to do is find the analysis approach which gives us data sets, which investors can then gain confidence over the new set lists and thats going to be the key to ensuring that we see investment in infrastructure and real estate over the coming years.

S.W: Within the real estate sector, what would you consider the top three data points by which sustainability should be measured?

C.C.K: I think data points for sustainability have been looked at for some considerable time, and the market leader is BREXIT. BREXIT have established a very significant data set in sustainability and they look at energy and water usage, they look at waste and carbon in the air and how well you treat these and how well you train your employees. I think ultimately growth by the market leader but they have some competitors who are now starting to ask questions as to whether there is additional elements, so the global reporting initiative, the carbon disclosure project and the Dow Jones sustainability index, to name a few, these organisations are keen to get their say about what's important in the real estate sector to disclose and this is what's driving, I guess, our publicly quoted companies and pension companies to continue to develop their policies on ESG and sustainability.

S.W: Do you think that equity investors will view sustainability as a mandatory criteria to facilitate an investment decision? Or, post-COVID, will it remain a nice to have rather than a need to have?

C.C.K: I think this is really interesting, and I think it has been a nice to have for many years, back to the nineties, and obviously the follow on is, if it's, do I need, ultimately, and I’m afraid to say, it's now going to become a need to have because of what I was just discussing, which is the policies and procedures of the pension funds and the quoted companies, which are the main sources of capital for developments and, therefore, unless you comply with ESG and sustainability policy elements you won’t get your money, you know, you decide, and that’s I think going to be the key driver to whether it’s nice to have or need to have.

S.W: Are you aware of any evidence or empereable data that demonstrates the sustainability impact cap rates in the real estate sector?

C.C.K: So again, a question that's being around for many years, and again I'll come back to the answer to the previous question, which is it's not necessarily about whether there’s an inward deal shift if you demonstrate sustainability, it actually means that potentially you won’t get a sale at the end of your development, so that is the most important thing for a developer to achieve is his end sale, because that’s when he crystallizes his profit and if you can’t get your end sale because of the fact you're development doesn't comply with ESG policies, then you’re stuck.

S.W: With the likes of Greta Thunburg pushing the environment at the political agenda, can you see an increase in governments legislating the creative brand sustainability and is that good or bad for the industry?

C.C.K: So, again, I think these are linked, I think you know the Paris climate agreement sets out what is expected of the real estate industry and a framework for achieving the aims of the agreement. I think given the statistics I would say that it's pretty much a question of it's in our hands, at the moment, but if we don't action the required activities than they were so, you know, I think we’re still in the place where we can influence and we can act but it's running out of time as we go forward.

S.W: Would you consider that the industry is actually capable of self-regulating or is government intervention actually needed?

C.C.K: So, I would like to think that because of the equity providers that we talked about in terms of their policies then I think it is in our power, as I’ve said, but it is something that we have to react to, as I said, or ultimately it will be down to force.

S.W: Are there any examples of countries that have got the right balance at the moment that we can learn from, between developers and investors taking responsibility rather than government intervention?

C.C.K: So the areas where I’ve seen examples are, there are examples in Europe, so the EUs non financial reporting directive on disclosure of non financial diversity information is driving integratable reporting and disclosure information on BST and climate risks that there we have the EU acting. In Australia they have standards board which envisage that there will be a world of sharing corporate sustainability performance and allows companies investors to make informed decisions that drive value and improve sustainability outcome. So, the Aussies are there, they’re starting to put those frameworks around them and the attitude of the ASX that in terms of their corporate governance council will have implications for companies that are listed on the ASX. Japan is also published its corporate governance code, so I think ultimately, it’s those publicly quoted property companies and institutions or pension funds that will drive that level of corporate integration within public governance bodies.

S.W: Okay, well I think thats everything we had lined up for you today, so thank you so much for taking the time to sit with us.

C.C.K: That's great, no problem and good luck with the campaign.

Narrator: You've been listening to real assets, real expertise. A podcast from Crestbridge, presented by Stephanie Workman. To find more episodes of our podcast go to our website, crestbridge.com or where you usually download you’re podcasts. For more information on how Crestbridge could provide a range of services to support your real estate structures visit our website www.realassetsrealexpertise.com

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