REAL ESTATE TECHNOLOGY PERSPECTIVES THAT COUNT

An Industry-Wide Focus on ESG

In recent years, leading companies across the commercial real estate industry have increased their ESG efforts to improve the sustainable operation of buildings amidst a worsening climate crisis and a related rise in climate risks. Specifically within the multifamily sector, the demand for innovative, sustainable new technologies has been strong, and this demand was part of the impetus for the launch RET Ventures’ own ‘Housing Impact Fund’ — an ESG-centric vehicle investing exclusively in solutions that address environmental and social performance pain points for multifamily assets.

Real estate stakeholders have been pushing for more sustainable buildings for a range of reasons, including climate responsibility and reduced operating costs. But emerging federal and regional legislation — such as the Inflation Reduction Act and New York City’s local Law 97 — have quickly created another major incentive. Through these and other laws, the government is introducing new capital, major tax incentives, and stricter reporting guidelines to the commercial real estate sector and raising the potential ROI on sustainable investments for multifamily assets. Coupling this regulatory landscape with strong demand from investors and tenants alike, a strategy for stronger ESG performance and greener building operations will be necessary for any asset hoping to hold long-term value in the market.

AI-Powered Technology for Real-Time Optimization

As the demand, risks and opportunities surrounding sustainable operations in the multifamily sector have been heightened, apartment owners and operators are facing growing pressure to not only collect building data for benchmarking and reporting purposes, but to also implement impactful solutions that leverage relevant data to actively improve sustainable operations. According to NYSERDA, HVAC equipment in particular accounts for about 40 percent of a building’s total energy usage — with this in mind, action to drive emissions reduction and energy efficiency, especially through HVAC optimization, is of significant importance for the industry.

There are many HVAC management systems currently on the market, but nearly all are designed to help owners and operators by monitoring building systems and identifying inefficiencies. The final and most critical step — actually remedying the inefficiency — is left to the property team. In some cases, building professionals are up to the task; but in others, essential fixes aren’t made, and the issues identified can languish for months on end. This gap in the market is just part of what drove RET’s latest investment in Parity.

Parity's technology platform is designed to transform the operations and energy management of mid-rise and high-rise apartment buildings with a capital-light, non-intrusive model. The platform utilizes an AI-powered system to optimize operations, taking complete control of a building's HVAC systems through the existing BMS or by deploying off-the-shelf sensors and controls. This enables real-time performance optimization, minimization of energy waste, the elimination of the human error that can often lead to energy inefficiency in buildings, and a decrease in capital investment costs for operators.

With its revolutionary technology, the company regularly reduces HVAC energy use by 15 to 25 percent — leading to cost savings of 30 to 50 percent for HVAC operations — this could mean up to $60,000 in savings annually for a typical 250-unit high-rise, though some buildings have yielded savings equivalent to $130,000 for a property of this size.

Ensuring Improved Performance — A Cost-Saving Guarantee

Relying on the effectiveness of its technology and the fact that it has full control of building operations, Parity is one of the rare building efficiency technologies that is able to guarantee cost savings to users. If a building’s projected cost savings are not achieved, Parity sends a check to the property owners to cover the difference. However, users shouldn’t be waiting around expecting a check from Parity to hit their inbox; while performance is guaranteed, buildings across Parity’s portfolio are already outperforming expectations and achieving average savings of 118% respective to projected savings. This means that the software leads to both a significant reduction in energy waste and a meaningful return on investment for the customer.

As Parity’s solution brings multifamily owners and operators a clear financial incentive to improve operational efficiency, we’re eager to begin this partnership with the company, promoting the adoption of sustainable technologies to better both real estate assets and the environment in the short- and long-term.

The Rise of Healthy Buildings

The coronavirus pandemic brought an increased awareness of how the places we live, work, and socialize can impact our health and well-being, and it is no surprise that this societal shift has impacted the commercial property sector. While indoor air quality was an immediate concern, several years after the start of the pandemic real estate owners are now putting increased, broader focus on integrating the human experience and buildings based on the growing demand from consumers for buildings that prioritize health outcomes.

And while it’s easy to pay lip service to concepts like “sustainable buildings,” many property owners and managers know that discerning tenants want more — and even that they’re willing to pay for it. In fact, according to the Center for Active Design, commercial properties with healthy building certifications garnered rental premiums of four to seven percent per square foot over non-certified peers, demonstrating a clear financial value for owners. Because of this, owners are looking to receive healthy building certifications for their properties for both the financial upside and as indicators of their commitment to maintaining ESG principles that create long-lasting positive impacts for their tenants and the broader commercial real estate space.

A Science-Backed Solution

With the recent launch of our Housing Impact Fund, RET is dedicated to pursuing technologies that enhance building health and sustainability, and it was this priority that led to our most recent investment in Fitwel.

As an evidence-based building certification developed with the CDC, the Fitwel Platform leverages the most relevant data to give owners science-backed insights into the health of their building or portfolio. Fitwel grades a project's holistic health based on seven “Health Impact Categories,” which are weighted and scaled depending on the type of building. On the comprehensive platform, customers can register, benchmark, and submit either a single project or an entire real estate portfolio for Fitwel Certification. From there, Fitwel’s portal offers customers an interactive, digital interface where they have direct access to details on a project’s health impact – increasing transparency and giving owners actionable insights on how to improve overall building performance.

For example, the Fitwel Platform helps owner-operators identify which among a range of potential amenities (green space, onsite childcare, etc.) will have a greater positive impact on resident wellness, and then helps them implement the more beneficial choice.

Operated by Active Design Advisors, Inc. (Adai), an affiliate of the Center for Active Design (CfAD) created solely to help grow and promote the implementation of Fitwel, the platform has a world-class team of professionals driving it forward. Fitwel’s proven ability to improve the resident and tenant experience while positively benefiting operators’ bottom lines across the global real estate sector makes it an extremely valuable tool for the CRE industry.

Fitwel’s Incredible Potential

While RET typically invests in technologies that specifically service the multi- and single-family rental space, we see incredible market opportunity in the prospect of a data-centric certification platform that has the potential to bridge the gap between building design and operational performance across real estate verticals. Equally important, we have tremendous confidence in Adai’s leadership team, which is led by industry veteran Joanna Frank.

The company has already gained significant traction. In 2021 alone, there was a 325% year-over-year increase in the total number of Fitwel certifications and a 288% increase in certified square feet, and the company expects further growth in the years to come.

The Future of Building Certification

Our investment in Fitwel comes at a time when the “S” of ESG — the social aspect — is a rising priority for consumers who view health as not just a building amenity but perhaps the most important one. With proven benefits for our LPs – and many of them already signed up for certification – Fitwel is a natural addition to our portfolio of companies targeting health and sustainability in the CRE industry.

As demand for healthy buildings continues to grow, we are confident that Fitwel will be a major solution across the industry for years to come, and we look forward to supporting the team at Adai as they grow and enhance the Fitwel Platform’s certification and reporting capabilities.

In late July, we were joined by our growing roster of real estate technology portfolio companies and the collaborative group of owners and operators that make up our strategic investor base for the annual RET Summit in Park City, Utah.

The Summit, which had approximately 100 attendees, featured three days of networking, industry panels, and company presentations. Conversation topics ranged from the general state of the market to enhancing operations and processes across property management, acquisitions and asset management as well as emerging focus areas such as improving ESG in the rental sector.

For five years, we have taken pride in our role as an industry-backed leader in the proptech space, and we understand the importance of connecting diverse groups of market participants to advance innovation, drive adoption and integration, and foster partnership. With this in mind, we want to thank all of the professionals who joined us and offered their expert insights for another great Summit. When we come together to promote creativity and innovation in the multifamily and SFR proptech industries, endless possibilities truly become tangible.

An Affordable Housing Crisis

From 1985 to 2020, median rent prices increased by nearly 150 percent despite overall household income growing just 35 percent — and this spike shows no sign of slowing any time soon. In May, the median monthly rent in Manhattan hit a historic high of $4,000, representing ​​a year-over-year increase of more than 25 percent. This rise in rental price has been driven by various factors, from an increase in inflation rates to pandemic-related drivers, including remote work, the expiration of rent freezes and a general return to major metro markets.

This rental environment points to a larger affordability issue in the sector, which ultimately places many renters in a precarious position financially and, for many of them, makes homeownership virtually unattainable. A study released earlier this year found that 61 percent of renters across the country’s largest metropolitan markets could not afford to purchase a home in the area they’re residing in, even if they spent years saving for a down payment.

Wealth Building for Renters

As this dynamic persists and rent prices remain at or near record highs, it is more important than ever for renters to consider impactful pathways to building their savings.. At RET Ventures, we’re committed to supporting this journey, driving our most recent investment in Stake. The platform, which sits at the intersection of proptech and fintech, is one of the first companies to receive funding from our recently-launched, ESG-centric ‘Housing Impact Fund.’

Leveraging behavioral science, Stake empowers renters by providing them with Cash Back on their rent, rewarding them for taking positive actions like signing a lease and paying rent on time while also offering no-fee banking services with cashback on spend to build savings. The solution also mitigates pain points for building owners and saves them money by increasing lease-ups, reducing economic vacancy, and decreasing delinquencies.

Using the platform, property managers receive a 130 percent return on every dollar spent, while renters earn an average of four percent Cash Back on their rent. In the simplest terms, Stake has reimagined the classic ‘rainy day fund’ for renters to build wealth traditionally associated with home ownership. Now, their largest expense is also a significant source of savings.

This Cash Back model also uniquely positions Stake against the other fintech solutions for renters that we have reviewed in the past, all of which are credit- or debt-based and ultimately encourage dangerous behavior as part of their proposed solution.

A Brighter Future for Renters

With Stake, renters have a risk-free, accessible and maintainable roadmap to building meaningful savings. Across the $385 million in annual leases currently connected to the Stake platform, 65 percent of renters have more money in their Stake account than any other banking account. And in the past year, the number of residences that offer Cash Back with Stake has grown by 10x as the mutual benefit that the platform provides for owners is clear; on average, renewals at Stake properties have been 30 percent higher than the rest of the market.

While renters’ current financial landscape has heightened the immediate demand for affordable housing solutions, Stake’s unique offering has immense potential to become a long-term resource in renters’ financial toolkit. We look forward to working in partnership with Stake, leveraging the symbiotic renter-owner relationship to actively combat the growing affordability crisis while creating a healthier financial future for renters and owners alike.

RET Ventures (‘RET’), a venture capital firm focused on technologies for the multifamily, single-family rental (SFR) and broader real estate asset classes, today announced that it has appointed former UDR President Jerry Davis as a senior advisor. Concurrently, RET announced that it has promoted three members of its existing investment team and brought on venture capital finance veteran Jacob Zornes as CFO.

For RET, the corporate expansion follows the launch of its “Housing Impact Fund,” an investment vehicle that will focus exclusively on technology solutions that address ESG-related issues, including climate and environmental impact, housing access and affordability and resident/tenant engagement and wellness. This expansion will enable RET to continue to find and back promising technology companies out of its Housing Impact Fund, its core early-stage venture capital funds and other investment vehicles, which now include more than $375 million in committed capital.

A 33-year veteran of the real estate sector, Davis spent approximately 30 years at UDR, including serving as the firm’s president and COO from 2013 to 2020. In addition to his experience overseeing operations for one of the country’s largest apartment portfolios — comprising some 50,000 rental units — Davis serves as a widely recognized thought leader in the rental housing sector, speaking widely at industry panels on topics including the intersection of real estate and technology.

“Technology’s potential to improve real estate has been apparent for more than a decade, but multifamily tech solutions have become much more sophisticated in the past few years,” said Davis. “Having worked closely with the RET team in my role at UDR, I know the impact they have in investing in and nurturing technologies that benefit the entire rental real estate ecosystem. RET’s approach of bridging the gap between user and technology has already delivered material benefits to many apartment REITs and private operators, and I look forward to continuing to guide the industry’s digital transformation in the years ahead.”

Zornes is an accomplished corporate finance professional with approximately 15 years of experience in the private equity/venture capital and real estate sectors. Most recently, he was a managing director at UMB Fund Services; prior to that, he served as director of finance at Peterson Partners. A CPA, Zornes also has an MBA from Weber State University and a BS in business administration from Brigham Young University.

“As technology investors, we are best positioned to address the real estate industry’s needs by leveraging the knowledge of market participants, and adding Jerry Davis to our team will enable us to better identify the inefficiencies the industry faces,” said RET Ventures Partner Christopher Yip. “With a labor shortage, rising cost of capital, inflation and other macroeconomic issues impacting development, asset management and operations, the importance of technology solutions has never been greater. With three significant promotions and the addition of Jerry and Jake, we have now shored up our team, enabling us to ramp up our investment velocity and lead the industry toward a more efficient, technology-driven future.”

In addition to its recent senior hires, RET also announced three promotions:

• Aaron Ru was promoted to Principal. Since joining RET in 2021, Ru has been a critical member of the RET investment team, spearheading investments in a wide range of companies, including several focused on the SFR sector, serving on portfolio company boards and leading a range of RET initiatives. Prior to joining RET, Ru invested in early-stage and growth-stage technology companies at Naspers Ventures, led strategic initiatives and M&A at Pinterest and United Talent Agency and served as an investment banker at UBS.
• Jameson Hartman and Sam Kroll were each promoted to Vice President. Both Hartman and Kroll joined RET in 2020, and were instrumental in helping the firm and its portfolio companies navigate unprecedented business challenges in the early days of the COVID-19 pandemic. Over the past two years, each has become a key member of the RET investment team, sourcing, vetting and underwriting dozens of potential investments for the firm and guiding its portfolio companies as they scale their growth. Although both work across the real estate technology sector, Hartman has heavily focused on solutions relating to property operations and sustainability, while Kroll’s has built expertise in technologies that enhance the real estate underwriting, acquisition and asset management process.

Davis and Zornes join a growing team at RET Ventures which also includes Senior Advisor Shawn Mahoney, who spent decades at owner/operator GID, retiring as CIO and CTO; and Venture Partner Fred Tuomi, who had previously served as president and CEO of Invitation Homes and as an EVP at Equity Residential. As RET continues its growth, the venture capital firm plans to announce other senior additions to the team later this year.

Since its launch in 2017, RET Ventures has backed more than two dozen real estate technology companies, including category leaders in smart home technology, leasing tech, construction tech and sustainability technology. As a result, RET Ventures Fund I has had four successful portfolio company exits to the public markets or strategic/financial acquirers and is delivering top decile fund returns. Among its most prominent portfolio companies are:

• SMARTRENT, a provider of enterprise smart home automation for property managers and renters, which went public via SPAC in 2021
• CHECKPOINTID, deploying technology that verifies government-issued ID to reduce rental fraud, which was acquired by MRI Software in 2021
• SIGHTPLAN, the multifamily industry’s premier provider of maintenance and resident service software, which was acquired by SmartRent in 2022
• FUNNEL, the leading marketing and leasing software provider for multifamily owners and managers
• ENGRAIN, the market leader in interactive mapping technology and data visualization software for the built environment
• KASA – a flexible accommodations company that partners with rental properties to increase their income streams
• JUNO, a construction tech company that brings a productized approach to ground-up development, bringing new precision, speed, and sustainability to the building process
• MARKERR, an analytics platform providing unique insights about real estate demand and supply tied to any location
• MEASURABL, the world’s most widely adopted ESG technology platform for real estate

The Rise of Industrial and NNN

Fueled by the explosive growth of e-commerce, industrial real estate has been thriving for years, and 2022 is set to be another record-breaking year for the sector. According to NAIOP, a staggering total of 401.4 million square feet of industrial space is forecasted to be absorbed this year. Pandemic-era trends like the e-commerce boom and the switch to remote work have caused already strong demand to skyrocket, and even as supply chain bottlenecks eventually subside, the overarching market trends that have driven industrial success are here to stay.

As more and more players enter the thriving sector, there is a growing need for purpose-built technology solutions that support the management of industrial properties. Particularly complex are the net-leasing structures that dominate the industrial sector; because most maintenance items are ostensibly managed by tenants, owners and asset managers of NNN facilities have extremely limited visibility into the upkeep and day to day condition of their properties.

Bridging the Gap Between Owners and Tenants

As the industrial asset class continues to overperform and attract mass amounts of capital, RET Ventures has kept its pulse on the quickly evolving market. We are constantly on the lookout for emerging solutions that address common friction points felt across the industry, which led us to our most recent investment in Fyxt.

A cloud-based commercial real estate platform supporting the management and operation of commercial properties, Fyxt is uniquely capable of bridging the disconnect between NNN owners, managers, tenants, and service providers. The platform facilitates increased transparency surrounding building performance by allowing all stakeholders to efficiently communicate through one system – eliminating the frequent confusion often felt by NNN owners with limited visibility into building maintenance.

By building the platform from the bottom up to digitize lease contracts and integrate with accounting, data visualization, vendor compliance, and insurance software, Fyxt streamlines operations dramatically, allowing warehouse owners and operators to efficiently run true capital cost analyses and manage operations through a NNN lens.

Broader Applications

Although we typically focus on value-add investments for the single and multifamily space, RET always seeks to identify solutions that make an impact on the real estate industry as a whole. Fyxt’s ability to solve a real problem for the industry — and the ease of use it provides landlords, tenants, and vendors — has driven the company’s significant traction, and, and we consider Fyxt a natural addition to the RET portfolio of companies.

While the proliferation of NNN industrial assets — and national portfolios — has made Fyxt a valuable tool for operators of warehouses and logistics facilities, the technology transcends the industrial sector. The pain points felt by these industrial owners mirror those of NNN operators of healthcare, retail, office and other historically net-lease asset classes, and, with features like a vendor procurement platform, Fyxt can benefit stakeholders in any lease structure.

The Future of NNN Asset Management

Many of the macroeconomic tailwinds that support multifamily are bolstering the industrial asset class as well, causing increased attention and capital to flow into the market. Fyxt’s ability to modernize NNN asset management and increase line of sight into operations for warehouse owners with national portfolios will be extremely beneficial as the market continues to grow.

As energy costs rise and ESG mandates grow more prevalent across a growing number of markets, portfolio visibility has never been more imperative for property owners. Fyxt’s ability to address this need has already streamlined operations for its early clients. As the company refines its integration strategy and partners with more NNN owners, it will continue to play an outsized role in helping landlords address operational inefficiencies enabling better tenant experience and increased NOIs.