Investing in proptech and other innovations for a sustainable future

BENETT Theseira's approach to sustainability in real estate has been shaped, in part, by his early years with the Land Office.

Early in his career, the Colombo Plan scholar was posted to what is now known as the Singapore Land Authority. There, his team was tasked with the repurposing of old government buildings.

"I was quite keen at the time to explore alternative uses for these assets," Theseira said. "A lot of these buildings actually had a lot of character, and could be put to more interesting and better uses."

One of the projects that his team worked on in the 1990s was Dempsey Hill, which was a former army camp.

Power supply issues in the area limited how intensely the property could be used, so Dempsey Hill became home to some antique, carpet and furniture stores.

"Over time, it became more attractive and commercially viable," Theseira said. He does not claim credit for the new identity Dempsey Hill has, as a bustling F&B destination, but said the early work to repurpose the properties is a fitting example of "how old disused properties can be repurposed without destroying them".

"When you demolish a building to build a new one, you're actually writing off their carbon storage because all of that goes to waste unless you can recycle parts of the building," he added. "There is a huge impact on the carbon footprint by destroying old buildings as opposed to repurposing them."

Theseira is now managing director at PGIM Real Estate and its Asia-Pacific head. And he continues to see merits in repurposing or refreshing old buildings under the group's portfolio, rather than tearing them down and rebuilding from the ground up.

He gives an example of 2 projects in Brisbane, Australia, where the group owns office buildings that were "old and tired" but well-located.

Instead of tearing them down, PGIM Real Estate has worked with consultants to refresh these buildings - including investing in better mechanical and electrical systems, improving facades for better heat and light management, and making the building more attractive overall to tenants.

In Singapore, he said, the company is also exploring alternative solutions for its 78 Shenton Way property.

"The simple solution for that is you redevelop it, because you can get the Central Business District incentive that gives you an extra 25 per cent gross floor area. But we're also exploring how we can not completely demolish the building (but) keep a part of it," Theseira said.

"It's a challenge from a regulatory and an economic (perspective), making sure we get the best returns for the investors. But that's something we're exploring quite closely," he added.

Investing for the future

PGIM Real Estate is the real estate investment and financing business of PGIM, which is the US$1.5 trillion global investment management business of New York-listed Prudential Financial.

As the second-largest real estate investment manager globally, with close to US$200 billion in assets under management, Theseira is cognisant that PGIM Real Estate has to strike a delicate balance between the costs and benefits of environmental, social and governance (ESG) initiatives.

"We do have a responsibility, as a fiduciary to our investors, to ensure that we are driving the best returns for them," Theseira said. "It's fortunate that a lot of institutional investors do understand (ESG), are getting much more in tune with this, and, in some cases, demanding it - but at the same time demanding the returns."

Theseira said the group has spent time and effort to educate investors on PGIM Real Estate's ESG framework to get their support.

"There may be some things that we do that may have short term costs, but have long term benefits at the end of day," he said.

While projects could be done at lower costs by ignoring some ESG principles, Theseira believes this is a short-sighted perspective.

"Over time, that building will be less attractive to tenants and even buyers; so in the longer term, you will actually suffer," he said, adding that this will be a "differentiator" in the future as more and more end-users, tenants and investors have greater demands for ESG.

To further its ESG cause and cement its position as a leader in the field, PGIM Real Estate is also tapping property-related technology (proptech).

"I love to talk about technology as well, because that's an important enabler for ESG," Theseira said. "We have been investing in proptech for a few years now - into venture capital funds initially, as well as into some of these innovation managers."

PGIM Real Estate in 2021 acquired a strategic equity stake in Taronga Ventures, an Asian investment platform focused on emerging innovation, technology and business models shaping the future of the built environment across the Asia-Pacific region.

Taronga's investments include a number of technologies such as CarbonCure, which injects recycled carbon dioxide into fresh concrete to reduce its carbon footprint.

Once injected, the carbon dioxide reacts with the concrete mix and becomes a mineral that is permanently embedded, which also increases the concrete's strength.

"It's a really quite interesting two-fold benefit," Theseira said. "That's an interesting technology that we have invested in and we'll see this applied not just for our properties but for others as well."

PGIM Real Estate also employs remote monitoring tools. For instance, digital 3D images are mapped on to digital plans. This enables the team to monitor construction progress and compliance with the plans.

"It saves our team from travelling to site as often, or in some cases, even flying to site. So there's a huge manpower time saving, but also, that reduced travel that has a significant carbon impact," Theseira said.

"Through our proptech investments, it's really given us great insight into what new technologies are coming out. Also, it's allowed us to trial some of these before they go to market," he added. "There are lots of technologies coming out and many of them do have an ESG impact."

Sustainable financing

PGIM Real Estate has also embarked on green initiatives on the financing front.

The group last year secured a S$900 million green loan for the refinancing of Nex, one of the largest retail malls in Singapore.

"(It was) one of the largest, I believe, to date in Singapore, and one of the earliest of size," Theseira said. "So (that was) something that we're happy to have achieved together with UOB and the other partners."

He added that PGIM Real Estate is working with banks to explore more green loans.

Lim Lay Wah, head of UOB's financial institutions group, said: "PGIM strives to embed ESG best practices throughout their investment process and believes that doing the right thing leads to better results for all stakeholders.

"In forging a sustainable future, UOB supports and collaborates with like-minded partners such as PGIM in actively seeking ESG opportunities, managing potential risks and participating in initiatives that help preserve our planet for future generations."

In addition, Theseira said PGIM Real Estate has been rolling out more green leases.

Some 20 per cent of its leases are currently green leases. The company targets to increase the proportion of green leases to over half of total leases by 2022.

"For the real estate industry, and definitely for PGIM, the topic of sustainability, which is part of ESG, has been very much something of focus," Theseira said.

He added that PGIM Real Estate has been very much involved in looking at sustainability issues and has been reporting within the GRESB framework for over a decade.

"We are working towards getting the vast majority of our assets to be (green) rated. We're probably sub-50 per cent now, and we want to get this to more like 70 or 80 per cent in the next few years. So that's a very strong focus," Theseira said.

The company has also announced its goal of achieving net zero carbon emissions by 2050. As it further defines the steps and practices towards achieving net zero, however, Theseira said the intent is to accelerate the timeline.

"Internally, we feel that we should come up with a number much earlier than (2050) and the plan is to be able to commit to be net zero much earlier than that," Theseira said. "We want to be very clear that if we say 2030 or 2035, we have a very clear roadmap to do that."

One of the major pushes for PGIM Real Estate on this front has been working towards a programmatic rollout for rooftop solar photovoltaic (PV) systems for assets where it is appropriate and cost effective.

"We've done this in various places," Theseira said. "Obviously, assets with bigger roof footprints make it more viable."

In Singapore, the group has secured solar providers for installations of rooftop panels at 2 logistics assets. It is also looking into solar power panels to offset its carbon footprint at Nex as well as exploring rainwater harvesting for irrigation of landscaping to reduce water consumption.

PGIM Real Estate is also evaluating the rollout of solar PV systems across its more recent logistics acquisitions of 12 assets in Sydney and Melbourne, 3 in Seoul and 1 in Nanjing.

"If you listen to or read a lot of what's being discussed now on the impact on the climate, we are at a crisis point, where we all need to make a very concerted effort," Theseira said. "It's not just a small group of people... we all need to make a very concerted effort."

He added: "All of us have to make that effort and also help to do our part. Not just tangibly, but also intangibly, with educating our children, friends and family to all make an effort to arrest this issue and stem the crisis."

This is the 16th in a 20-part Green Business series, in collaboration with UOB, exploring sustainability trends across businesses and industries.