Expert view: Hines Real Estate on how tech can help turn ‘brown into green’

Simone Pozzato and Paul White are driving decarbonisation at Hines Real Estate, one of the largest real estate firms in the world. They talk to Impact Investor about the crucial role technology plays in the decarbonisation of the sector

US-based Hines Real Estate is one of the largest real estate investors in the world, managing some $84 billion in real estate assets, across 27 countries and some 240 cities.

Since its foundation in 1957, Hines has developed, redeveloped or acquired 1,486 properties, totalling over 492 million square feet. The firm’s current property and asset management portfolio includes 634 properties. 

With the built environment contributing 39% of all global carbon emissions, according to the World Green Building Council, big players like Hines play a crucial role in the transition to net zero.

“Technology is perhaps the biggest challenge for real estate investors,” Simone Pozzato, managing director and fund manager for the Hines European Core Fund (HECF), tells Impact Investor. “This is true both of building materials and of the more complex combined technologies which we will have to use in the operation and development of buildings.”

“At Hines, we have had for multiple decades a technical team in Houston – engineers who are well qualified to assess which technologies are important and how to make buildings greener,” says Pozzato. This team tests technical solutions centrally, before rolling them out across the firm’s global business.

Both the engineering and ESG teams act as an internal think-tank for sustainability projects more generally. “They get the tech tested, experimented with, then rolled out,” says Pozzato. “We are developing a solar panel playbook for logistics which will enable us to provide electricity on site, using the best materials and achieving the highest possible yields.” Hines also uses ZiggyTec, which allows careful checking of energy consumption for every asset. 

Geothermal energy is also one of the most interesting technologies the company is deploying. “For example, we have a building in Copenhagen, the Portland Towers (the former site of Portland Cement), which has been turned into an office building. We have found a solution where we will use geo-thermal energy for some 90% of energy consumption.”

“Timber use is also an emerging and important technology in our developments. We are rolling this out in the US, Australia and Europe, where our first office building, working in conjunction with Henderson Park, is to be completed in Barcelona.”

‘Brown into green’ strategies

These technologies play a key role in the retrofitting strategies that real estate managers are deploying across Europe to meet the demands of the EU’s Green Deal, says Paul White, senior managing director of Hines Value Funds.

“We very much believe in the opportunity to take brown into green – this is the next generation of investment,” White tells Impact Investor. “It is one of those very rare cases where there is a strong financial investment case and at the same time it will make a real difference to the environment of cities we invest in.” He adds: “ESG has very much been in our DNA for a long time.”

Another example of what Hines is doing is a building in Munich’s Neuerperlach district. Previously called Fritz-Schaffer-Street 9, it used to be occupied by German insurance giant Allianz. Hines has renamed it ‘aer‘, and is turning it into a multi-tenant office building, with the aim of being completely carbon neutral.

“We very much believe in the opportunity to take brown into green – this is the next generation of investment”

“This is very much a flagship ESG renovation, representing exactly what we want to achieve, where the scheme we’re executing is mindful of both embodied and operational carbon,” says White. “One important aspect of this has been the use of timber instead of concrete to reduce the embodied carbon.”

“We should stress that we don’t just undertake a ‘brown into green’ strategy in our value add funds but also across our core funds,” says Pozzato. “Because brown assets will be more and more discounted on their value in the future. By calculating a sensible capital expenditure budget, we will improve our assets by investing in retrofitting each year, where possible, to make a strong investment case as well as achieving carbon reduction.”

“In our biggest core fund, I would estimate we will spend €10 million of Capex each year for this purpose,” says Pozzato, adding this is money well spent because it will “come back in the enhanced (or more resilient) valuation of assets”.

White says they are very mindful that “anything we do today must not get marooned by the passage of time. We must not unintentionally create the brown assets of the future. We have to be the creators of the next generation of buildings by aiming far higher than strictly necessary today”.

Hines has developed a net zero portfolio roadmap and is in the process of developing asset-level carbon roadmaps, identifying the decarbonisation initiatives and measures. These build off the energy optimisation efforts that have been in place for many years and which Hines says have been able to reduce landlord-controlled carbon emissions by close to 34% between 2016 and 2020.

“Anything we do today must not get marooned by the passage of time. We must not unintentionally create the brown assets of the future.”

Physical climate risks

The duo also tells us that physical risk is increasingly gaining attention from investors. White says this is “something we’re very well aware of because we have a large proportion of Dutch investors who are very much ahead of the curve in sustainability and climate risk. We make performance studies on all the assets we acquire”.

Daniel Chang, European head of ESG at Hines, gives us more details. All assets within Hines’s portfolio have been assessed for their physical climate risk exposure, looking ahead to the 2030 – 2040 timeframe under the RCP 8.5 scenario, which is the high emissions global warming scenario: a temperature rise of 4 degrees Celsius or more.

“As part of the assessment, risk levels were scored for six climate hazards comprising 21 underlying risk indicators,” explains Chang. “Risks assessed include heat stress, water stress, sea level rise, hurricanes & typhoons, floods, earthquakes and wildfire.”

Hines are currently in the process of reviewing further steps to advance its approach to managing the portfolio’s risk exposure and ensuring asset-level resilience, Chang says. The have also assessed climate-related transition risks using low-carbon transition scenario analysis through CRREM (Carbon Risk Real Estate Monitor) to identify those assets most exposed to stranding risks in both 2°C and 1.5°C policy scenarios from 2020 to 2050.

Because of rising sea levels, White says “the geographic areas we are most exposed to are the obvious ones: Amsterdam and Copenhagen”.