February 8, 2019 Comments (0) Views: 587 National News

The Industrial Evolution’s Impact on CRE Finance

By Dennis Kaiser

EBI Consulting’s Dan Spinogatti takes a look at the intersection of technological advances in various industries, and shares a few insights into what real estate strategies the company sees being adopted. He addresses why technology is important to investors or developers, some of the competitive advantages, as well as a few examples of the approaches being deployed in our latest 3 CRE Q&A.

Q: What are some of the technological advances being incorporated into industrial projects today that investors or developers should be aware of?
A: New technologies are impacting the industrial market from all angles, but with the same end goals – sustainability and efficiency. Smart Building Technology, for instance, synergizes data collected from all building systems in real-time so owners can proactively optimize their operations, reducing energy costs and increasing reliability.

Tenants want energy-efficient technologies like advanced rooftop HVAC units, electrical microgrids, and sensor networks that automate internal conditions. Commissioning of building systems to improve facility operations has seen tremendous growth across markets, which confirms that sustainable technology in design translates into sustainable operations. E-commerce has resulted in demand for urban distribution centers where land is a premium, and thus vertical and multistory warehouses are on the rise. And if that’s not enough, robotics and automation, from sorting inventory to driverless vehicles, will also change the way many facilities operate.

Q: What competitive advantages can be gained through advances?
A: What’s compelling about assets with these sustainable technologies is their competitive advantage in the marketplace. In addition to lowering energy costs and maximizing performance, studies have shown that properties with sustainability measures depreciate less quickly than others, and have higher tenant attraction, rents, and sale prices. Prologis has backed this up, reporting that its sustainable industrial assets attract top customers. From the risk perspective, functional obsolescence in the face of technological advancements, tenant demands, and increasing sustainability regulations is a major factor to consider. As favorable impacts on both risk and returns are recognized, shareholders are also looking for sustainability practices and environmental performance.

Q: How are the latest tech advances being received in the marketplace? Are there any compelling examples you can share?
A:Sustainability was not on the map 10 or even five years ago with industrial clients we’ve worked with. Sustainability is impacting this industry just as it is any other, finding opportunities to improve operational efficiencies to reduce cost.

Prologis has been doing some big things with sustainable technology at their industrial facilities. They have one of the first WELL Certified logistics facilities, located in Tacoma, WA, and has been recognized as a Green Lease Leader for their innovative efficiency and sustainability practices. At one of their sites in California, they worked with their tenant, Stanley Black & Decker, to reduce energy consumption through methods like solar installation and energy-efficient lighting. Their projects with the most media attention have been the nation’s first multistory warehouses in Seattle, New York City, and San Francisco, but the sustainable technology they commit to at thousands of sites globally speaks volumes about the new-norm for logistics facilities.

A different take which is also compelling is from CalPERS, the largest pension fund in the United States. They have adopted investment strategies that focus on sustainability and implementing sustainable building technology across its real estate portfolio. This was largely driven by CalPERS’ investment managers with the active involvement of investee companies. As a result, they have seen a huge reduction in energy consumption (over 25%) since the initiative began.

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