Brendan Wallace’s ambition is beginning to seem almost limitless. The LA-based venture firm that Wallace and co-founder Brad Greiwe launched less than seven years ago already has $3.2 billion in assets under management. But that firm, Fifth Wall, which claims there are massive financial returns at the intersection of real estate and technology, isn’t worried about digesting that capital. It’s heavy-hitting investors — CBRE, Starwood and Arbor Realty Trust among them — don’t seem concerned, either.
Never mind that just last month, Fifth Wall closed the largest venture fund of all time focused on real estate technology startups with $866 million in capital, or that it closed a $500 million fund earlier in 2022 that aims to decarbonize the real estate industry. Never mind that on top of these two bets, Fifth Wall also expanded to Europe last February with a London office and a fund of 140 million euros. (It also has a large office in New York, an office in Singapore and a presence in Madrid.) As for the fact that office buildings in particular have been shocked by a combination of layoffs, politics from home and higher interest rates, Wallace says he considers it as an opportunity.
Wallace already sees many more opportunities he wants to pursue, including in Asia, as well as around infrastructure, including buying and building “solar and microgrid and utility-scale wind farms” that Fifth Wall plans to both invest in and provide financing for to.
That’s a lot to take on, especially for a now 80-person outfit whose biggest exits today include homecoming outfit OpenDoor, property insurer Hippo Insurance and SmartRent, which sells smart-home technology to apartment building owners and developers. No one has been spared by public market shareholders; But when we talk to Wallace and the picture he paints of the world, it’s easy to see why investors keep throwing money at his team.
We spoke with him earlier today in a chat that has been edited for length.
TC: How is it that your many real estate investment partners are investing so much capital with you when it is such a challenging time for real estate, especially office buildings?
BW: It’s the same mission that we were founded on, which is that you have the two largest industries in the US, which is real estate, which is 13% of US GDP, and technology, and they collide and it represents a huge explosion of economic value [as] we’ve seen in this kind of super cycle of proptech companies that have grown up. Now this extra layer has been revealed around climate technology. The biggest opportunity in climate technology is actually the built environment. Real estate accounts for 40% of CO2 emissions, and yet the venture climate technology venture capital ecosystem has historically only spent about 6% of climate VC dollars on technology for the real estate industry.
How do you designate which vehicle – your flagship proptech fund or the climate fund – will fund a particular startup?
How we define proptech is technology that can be used by the property construction or hospitality industry, so it has to be technology that can be immediately used by them – which can be many different things. It could be leasing, asset management software, fintech, mortgages, operating systems, keyless entry – but it doesn’t necessarily have the effect of decarbonising the real estate industry. It may be a derivative benefit, but it is not the core focus. The core focus is simply that you have this industry that has been so slow and late to adopt technology that is now starting to do so, and as it does, it’s creating all this value. We have already had six portfolio companies on the stock exchange, and we are a six-year-old company.
[As just one example], do you know how many multi-family units today have a smart device inside them? One percent of all multifamily units in the U.S. have a single smart device—any smart device: a light switch, display, access control. There is a massive transition going on right now where every single thing inside a building is going to be smart. And we’re at the beginning of that right now.
However, I believe that the opportunity in climate technology is a multiple of that simply because the costs required to decarbonize the real estate industry are so great. The cost of decarbonizing the US commercial real estate industry is estimated to be $18 trillion. That’s just the American commercial real estate industry. To put that in perspective, the US GDP is like $22 trillion to $23 trillion and we have to decarbonize the real estate industry over the next 20 years, so one way to think about it is that we have to spend about one year of US GDP in of the next 20 just on decarbonizing our physical assets.
Where are the most important spending areas you focus on?
I’ll give you a very concrete example, which is literally concrete. If concrete were a country, it would be the third largest CO2 emitter on planet Earth after the US and China. As much as 7.5% of global CO2 emissions come from concrete production. It is the most used material on planet Earth after water. So you have this raw material that is an input to all our infrastructure – all our cities, all the homes we live in, all the buildings where we do business – and which generates 7.5% of global CO2 emissions. And so the race is on right now to identify an opportunity to make carbon neutral or carbon negative cement. We actually invested in a company called Brimstone with Bill Gates and Jeff Bezos because they also see the possibility that this is one of the most important consumption categories where the $18 trillion required to decarbonize real estate is going to go. Then you can go further down [list]from glass, steel, cross-laminated timber – just all the materials used to make buildings.
More immediately, and this is more of a space reuse issue, but what do you think will become of underutilized office space in this country over the next 18 to 24 months? It’s particularly extreme in San Francisco, I realize, given the population of tech workers who haven’t returned to the office.
I wouldn’t draw too much of a conclusion from San Francisco alone. I think San Francisco has probably been the hardest hit city. I don’t think San Francisco is the canary in the coal mine for the rest of the US office industry. But with that said, I think we’re now in a moment where obviously the pendulum has swung very far in the direction of hybrid working and companies reducing their physical footprints, but you’re already starting to see that these things are circular and cyclical and that some employees actually want to go back to the office, while CEOs say, ‘It’s hard to guide and build culture and drive the kind of operational efficiency we once had in an office in a completely remote environment.’ So my view is that we are probably two to three years away from another pendulum swing back towards companies extending themselves into a physical office. I think we are at an artificially low ebb in sentiment and demand for office.