Phase 2 - Real Estate 101 (How to or one big idea)

Podcast - How Climate Risk Is Impacting Today’s Real Estate

Marcia Cuenca
October 12, 2022
Podcast - How Climate Risk Is Impacting Today’s Real Estate
People just need to take action and start making progress."

- Billy Grayson, Executive Vice President, Centers and Initiatives at ULI

Leslie Nagao, Chief Marketing Officer, and Billy Grayson, EVP, Centers and Initiatives, of Urban Land Institute (ULI)  joined us to discuss the upcoming Fall Meeting in Dallas and how Climate Risk is impacting today’s real estate.

Special Fall Meeting Discount
The RealCrowd Podcast will be attending the Fall Meeting to share highlights from the event and you’re invited to attend as well with a special discount from ULI.

To register for Fall Meeting and to receive a 15% discount please click here and be sure to use the promo code: PODCAST15.

We hope to see you there! Please let us know if you plan on attending.

About Fall Meeting
The ULI Fall Meeting attracts thousands of attendees annually, providing a myriad of opportunities to make one-on-one connections with the people you need to know.  By attending, you will build relationships with developers, investors, architects, planners, brokers, academics, attorneys, decision makers, and government—and get the cutting-edge information necessary to build your business.

About Urban Land Institute
The Urban Land Institute is a non-profit education and research institute supported by its members. Its mission is to shape the future of the built environment for transformative impact in communities worldwide. Established in 1936, the institute has more than 45,000 members worldwide representing all aspects of land use and development disciplines.


ULI Reports
ULI Net Zero Compendium

Climate Migration and Real Estate Investment Decision-Making

How to Choose, Use, and Better Understand Climate-Risk Analytics


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Adam Hooper (00:03) Hello and welcome, I’m RealCrowd CEO Adam Hooper, and this is the Real Estate Investing For Your Future podcast. Here we explore the latest in commercial real estate trends, insights, and investment strategies that passive investors can use to build real estate portfolios that last.

Disclaimer (00:21) All opinions expressed by Adam, Tyler and podcast guests are solely their own opinions and do not reflect the opinion of RealCrowd. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions to gain a better understanding of the risks associated with commercial real estate investing. Please consult your advisors.

Adam Hooper (00:40) Our special guests today are thought leaders from the Urban Land Institute, also known as the ULI. Their Chief Marketing Officer, Leslie Nagao and Billy Grayson, the Executive Vice President of Centers and Initiatives. ULI is a global network of over 45,000 professionals in every sector of real estate development and land use from private enterprise to public service. In today's conversation, Leslie and Billy discussed the biggest trends impacting real estate, how climate risk is factoring into financial model. And their upcoming fall meeting in Dallas, featuring the leading minds from every corner of the real estate industry. We're also excited to announce that we'll be bringing the podcast to Dallas to share highlights from the fall meeting, and we would be thrilled to connect with you while you're there, if you would like to attend the fall meeting, be sure to check the show notes for a special promo code and a link to register.

Adam Hooper (01:33) With that, we hope you enjoy today's episode with Leslie and Billy. Well, Leslie, thank you so much for joining us today. We are super excited to be a part of the ULI Fall Meeting. ready to kind of dig in and learn a little bit more about ULI your journey to ULI. And so why don't you start with what’s, generally what ULI is, who your members are and how you got involved with them.

Leslie Nagao (01:59) Sure. Thanks for having me. And I'm very excited to have the opportunity to talk about Urban Land Institute. So, a little bit about ULI or Urban Land Institute. We are 86 years old. We've been around for quite some time. We're a nonprofit organization globally based. We have a presence in we call the Americas, which is the us, Canada, and Mexico. We also have a presence in Asia Pacific and in Europe.  and a little bit about what our mission is.  our brand mission is, is in its highest and purest form, is to shape the future of the built environment. for transformative impact in communities worldwide. It's a very lofty mission. But we focus on a couple of areas to help achieve this mission. And one area is around decarbonizing the real estate sector. and defining a path to net zero the other. Really being able to find solutions around attainable housing. So how do we, how do we get attainable housing, more affordable housing, and specifically for the low- and moderate-income households.

Leslie Nagao (03:05) And then the last sort of sector for us, sort of area of focus is educating the next generation of real estate leaders. I know that these feel like very complex, multifaceted issues to address, but what I think is so great about Urban Land Institute is how we're really uniquely positioned to be most effective in affecting positive change in these areas. And that's because Urban Land Institute is the only nonprofit organization that is set up to be cross-disciplinary. So, we have members. 45,000 members globally that represent every sector of the real estate industry. That's from developers, planners, financial architects, designers, public sector, private sector, you name it. We've got those members in our organization and they're all ready to focus on delivering against these solutions because ultimately it affects all of humankind, but then it also helps their bottom line as.

Adam Hooper (04:09) Yeah. And we've been involved with ULI throughout the years, and we've given presentations on different councils and it's amazing how broad the coverage across the industry is. Right? I think a lot of industry organizations are focused in one specialty or one business discipline and I think it is pretty impressive to see how ULI does cross the whole spectrum of the real estate space. And so, I think if you're trying to tackle these problems that they're very large, very complex problems. To be able to have buy into the mission and exposure across the whole sector, I think it’s crucial. So, I guess what about that mission brought you to Uli? What was that kind of excites you or gets you. what you're doing this today?

Leslie Nagao (04:58) I was reading that question and I thought it's a really good question and to be perfect, frank and transparent. I think, all of us, if we really sort of look inside ourselves, we want to do something bigger and more, bigger than ourselves and how can we really do that?  And I was thinking about where I wanted to go in my career. And I've always been in marketing. I love marketing. I'm very much a marketer as they, as marketers, use that term. But my passion is around brand and storytelling, and I stumbled upon this opportunity where Urban Land Institute or ULI was looking to find someone to head up their global membership. And I started to read more about what ULI is doing and all I kept thinking about was this is ULI is such the best kept secret and people really need to understand how the real estate industry with this sort of cross-disciplinary membership cohort is affecting change and it's affecting change that impacts all of us, ultimately will benefit the individual. And I had an opportunity to say I could be with an organization that can make material change for the future. And I get to leverage, my experience and my desire to do storytelling, which is one of the things that is going to be our focus in the coming year, is to tell our story more consistently and really get people to focus on what we are doing. What our members are focused on, and why it's important that everybody knows that ULI is really trying to deliver change against these core mission areas.

Adam Hooper (06:48)  Yeah, and I think housing affordability, obtainability is something that's been on a lot of radars for a long time. I think our industry is certainly becoming much more aware of climate issues and sustainability and , decarbonization. And I guess how much of that is a marketing mission, right? I mean, just telling, building awareness that this is an issue, right? I'm interested to get your take of implementation is part of it, but also we have to get people to care, right? We have to get people to understand that these are the challenges that they're facing us. So how much of that is a marketing start to this much broader initiative? I guess

Leslie Nagao (07:33) That's a great question, Adam, and I think a lot of it is around education, marketing, communications, and the real estate industry has. Part in this, solving this issue, Right? It's such a complex issue as you highlighted. But where we can play a really key role is convening the cross-disciplinary group of individuals to say we can make more, we can leverage products that are less expensive. We can create communities, reusing existing infrastructure. But what people. What marketing can contribute to this conversation is really getting out there. What we can do differently, but having people truly have a clear sense of what the issue is I was just reading a stat the other day and I think on any given night, and Billy will probably quote this as well. Over 580,000 people are homeless on any given night in the US. If you look at, if you think about that number and you put that in a different scale, it's like six football fields, six stadiums, and it' amazing to me that many people are in that situation, and we are of a country that we have so much available to us to sort of try to crack this problem. And I think that by telling this story in a really sort of succinct and simple way, you can really create that awareness. I don't wanna say it's a PSA. But it really is, it's sort of a public service announcement that people need to see what's going on in their neighborhoods and how the real estate industry in a positive way is trying to solve that problem.

Adam Hooper (09:21) Yeah, we're definitely looking forward to digging in with Billy here in a few minutes on those initiatives as well. So why don't you tell us a little bit about the Fall Meeting? Again, as we're announcing here on this podcast, we're gonna be down there recording a bunch of episodes with a phenomenal list of speakers and attendees there. Bravo to the registration list, we're going through and we're making a list of people that wanna talk to like, Oh my gosh, I don't think we can fit that many interviews in. It's gonna be a super very impactful, high caliber conference. And I know a lot of our listeners are either familiar with ULI or members or council members themselves. So maybe for those that aren't. Tell us a little bit about the Fall Meeting. What's going on there? What can our listeners, how can they get involved in it? What's the program like?

Leslie Nagao (10:14) Well, you did a great job of sort of setting up the stage, so thanks Adam. The Fall Meeting is one of our major events that we have in the year. It's in Dallas this year, it's running on the 24th through the 27th of October. We'll have about 5,000, attendees at this point are probably one of our larger attended events. So, we're super excited about that. But what you can expect is just this sort of collection of different things that you can do. So, for example, we'll have over 28 tours that attendees can participate in, and they get to go into the local community. Walk around different sort of areas, project areas, the project managers, and the leads that those projects are there to kind of give you an insider view and an exclusive view on some of the tours and projects that are happening in the Dallas area. So, I think that's a really experiential way to enjoy the Fall Meeting. You mentioned that we have so many great speakers. We will be doing our annual emerging trends forecast. So, we bring speakers in from PWC and we have other, it's a moderated event where we talk a little bit about, what are the trends that are coming in the coming years for real estate? This is a really big deal for us. We also have a lot of sessions that are really number led, and that is a really important thing to kind of highlight, is that our events are basically shaped by the input from our members.

Leslie Nagao (11:56) It's super unique. So, develop our session courses and so forth, based on feedback from our members. So, we'll have anything from resiliency to where the, where the future is going with the next generation of real estate leaders. We talk about mixed use. We talk about technology and how technology is influencing where the real estate industry is headed. So, it's just a broad, brush view of all different types of topics. And then there's certainly, activities every evening that you can participate in. And we've got different affinity tracks for students and young leaders and so forth. So, there's literally something Adam for everyone.

Adam Hooper (12:41) And who's the attendees, right? A lot of our listeners are investors in real estate, passive investors in real estate. So, they're maybe not in the business per se. Is there value to non ULI members to come and check out some of the events?

Leslie Nagao (12:56) Absolutely. We have a lot of nonmembers that attend the event as well. If you think about who attends it, pretty balanced in terms of we have a high level of senior level people in the developing space. We have a lot of architects. We've got public sector, we have planners. so, as I had mentioned before, it's just a diverse group of people that are coming together to really convene and have these sort of intimate conversations around, what’s happening in the real estate industry.

Adam Hooper (13:31) Perfect. And then we'll have links in the show notes here to where you can learn more about the conference and where you can register and hopefully get involved. Are there any panels or speakers that you're particularly interested in, Leslie?

Leslie Nagao (13:45) There’s two. One is, I'm a big data geek, so I'm very much excited, I'm very much excited about the Emerging Trends in Real Estate. That's going to go out on the 27th. And then Jeanne Gang, we'll announce she's our 2022 ULI prize for visionaries in Urban Development Laureate. She's got an amazing sort of background in portfolio and so we'll spend some time highlighting, her work, so that's exciting.

Adam Hooper (14:16) Perfect. And yeah, we've had Byron on last few years to talk through the Emerging Trends Report and look forward to catching up with him down in Dallas to get a fresh look at the report once you guys release that. So yeah, we're super excited again to be a part and to bring hopefully some of that great content to our listeners today. So, again, Leslie, I think this is a great overview of who the Urban Land Institute is and intro to the Fall Meeting. And we'll check again, have links in the show notes for everybody that wants to learn more. And I think you are doing a digital version of it as well for folks that maybe can't attend in person, right?

Leslie Nagao (14:52) That's right. And you can go to to learn more, whether you wanna look at it online or if you'd like to attend all the information is there.

Adam Hooper (15:03) Perfect listeners, be sure to check that out. Take a look in the show notes, go to fall dot to learn more. And stay tuned for a handful of upcoming episodes with the best from the show. So, Leslie, thank you for your time and bringing this to everybody's attention. And we look forward to seeing you here in a couple weeks down in Dallas.

Leslie Nagao (15:21) Looking forward to seeing you, and thanks Adam for the opportunity.

Adam Hooper (15:24) Thank you, Leslie, for sharing insight into some of you ULI’s initiatives and the upcoming fall meeting. Listeners remember to check the show notes for a special promo code and link to register for the upcoming fall meeting being held in Dallas from October 24th to 27th. With that, we'll jump over to Billy Grayson to discuss how climate risk is impacting today's real estate.

Adam Hooper (15:45) Well, Billy, thank you so much for joining us today as we just mentioned with Leslie, we're super excited to have the opportunity to be a part of the ULI Fall Meeting. And we thank you for coming on the show today to tell us a little bit more about what you're doing with ULI and the focus of these initiatives going forward. So, thanks for spending some time with us. So, before we jump into some of the major initiatives that ULI s focusing on right now, why don't you tell us a little bit about your background in real estate, the work you do at ULI, and how you got involved with your role today.

Billy Grayson (16:19) Sure. So my current role is I'm the Executive Vice President for Centers and Initiatives at the Urban Land Institute, which means I oversee our programs in real estate, economics and capital markets, attainable housing, sustainability and all things ESG, homelessness, infrastructure, and a new program that we're launching this fall called Art in Place. Before that I spent five years as the head of the Center for Sustainability at ULI.

Adam Hooper (16:47) Leslie mentioned as well, and I don't know if it's maybe just a semantics issue. The attainable versus affordable housing are those one in the same different words or are those different? Do you guys see those as different things?

Billy Grayson (17:00) So sometimes people in the housing space will separate it as affordable with a big A versus affordable with a small a. We don't focus primarily on,   federally subsidized housing. Our real focus is on workforce housing, so trying to find ways to make more housing more attainable for more people and more markets.

Adam Hooper (17:23) Perfect. And yeah, thank you for that. So sorry I jumped in there.

Billy Grayson (17:26) Yeah, no worries. My background, I was the Head of Sustainability for US based real estate investment trust called Liberty Property Trust before coming to ULI. And I have about 15 years of experience in ESG and climate action planning as a management consultant, as the head of sustainability for a Fortune 500 company and working for several years on supply chain sustainability. In the consumer electronics industry.

Adam Hooper (17:55) And I'm curious how you've seen other industries bleed into the real estate space from an ESG perspective. I think real estate's been a historically a slow adopter of new initiatives, certainly from the technology side, and I think has been slower than some of the other financial markets to pick up on the ESG side of things. So how has that transition been and where would you. I guess, where would you grade the real estate space relative to some of the other industries that have maybe picked up a little bit earlier on some of the ESG initiatives?

Billy Grayson (18:26) Yeah, I think that's a great question. I think it's somewhat driven by who your stakeholders are and what you're being asked to do. So, from my experience in the electronics supply chain, there was a major human rights issue associated with a very decentralized and long supply chain in electronics occurring. I'd say 15, 20 years ago. And so, the industry had to band together to build supply chain traceability so that they could assure that they were tackling human rights and environmental issues in that supply chain. Real estate is just starting to look at its supply chain and just starting to work with partners to figure out how to tackle carbon emissions associated with building materials in the construction and building. So, I'd say, when it comes to supply chain issues, it's becoming front of mind for real estate as they start to tackle decarbonization and a path to net zero. And that wasn't the case until just a couple years ago.

Adam Hooper (19:23) And now maybe let's maybe tackle the climate side of it first and then get to some signs of hope on the sustainability side and getting to net zero.  

Billy Grayson (19:33) There’s always hope.

Adam Hooper (19:37) We're recording this on the heels of hurricane Ian. I'm recording this from Oregon where we've seen unprecedented wildfires and structures being threatened by fires these days, right? I mean we're getting more extreme climate patterns it seems every season. How is ULI or how is the real estate industry taking that into consideration, right? Or, positioning their plans going forward, seeing what we've been seeing lately. And that's a really big question.

Billy Grayson (20:12) It is. Yeah. So first you have to sort of start with the physical risk versus the transition risk and the cost of extreme weather events to the real estate industry in the guys of uninsured losses is going up every year. And as you mentioned, these physical risks are increasing in their frequency and their magnitude, whether you're talking about hurricanes and storm surge or extreme rain events that are happening in the Midwest and the southeast or drought, which is, really affecting the west and wildfires, which are affecting more and more areas, different areas every year. It's a big question. There are real estate actors who are working to retrofit their existing buildings. We at ULI recently did a report on cost effective resilient retrofits. Where people are looking at their portfolio, assessing the climate risks that their current buildings face, and seeing what mitigation strategies they can pursue, whether that's water smart development in drought constrained regions, or wildfire resilience for master plan communities in the west. Or figuring out ways to retrofit, all types of buildings in the Gulf Coast and the East coast to make them more resilient to hurricanes and storm surge. So, some of this is just what you can do to reduce that physical risk. On the investment side, investors are looking across their strategy to better assess the climate risk of their portfolio to price it into their acquisition and disposition strategy. And then to figure out mitigation strategy. And if you're an asset owner, mitigation is how do I harden my building against climate related risks? But as an investor, you have multiple options. I can harden my assets; I can get more involved at the market level to build more resilient infrastructure. I can hedge my risk away from those most climate risky regions or I can just decide that I'm going to invest in the places where I'm seeing the lowest level of climate risk, or I just bake it into my pricing and see if the market is starting to reflect the climate risk associated with the properties that I may wanna invest in high-risk areas, but I want to be paying the right price, commence it with the risk that property's gonna face.

Adam Hooper (22:34) And one of the panels that I'm interested in as again, kind of a data nerd. You've done, ULI on some research with LaSalle about the climate risk analytics and how you can start quantifying some of these issues. Super interested to dig into that and learn more about that, but I guess at a higher level, geographically, different factors around the US but maybe except kinda the central Midwest or northern Midwest, you kind of hit on all the different geographies that might be affected by climate, right? So are there regions that carry more risk than others that maybe more protected from climate risk and then how can investors or operators gain access to that data to start making some better decisions around what those impacts might be.

Billy Grayson (23:27) Yeah. First, I'd like to say it's great that you're a data nerd, because that goes a long way to tackle in climate change in real estate, being a data nerd, and it's pretty amazing the tools that have been created just in a few short years to help us better assess climate risk. I would encourage your listeners to attend that session. We're also going to have a session in our member engagement area. Where Nuveen is going to talk a little bit about their climate risk software and analytics strategy and what they've learned by going through this process. So, lot of great member leaders who are using multiple software companies to help them better assess and price risk. So, the challenge we're seeing right now is even with the same assets, you ask multiple climate risk providers to give you an assessment of the climate risk and value at risk, and you'll get three different answers. So, trying to figure out why that is happening and how to fix it is a big part of the report that we did with LaSalle.

Billy Grayson (24:26) So you also asked about regions. I don't want this to sound doom and gloom, but no region is safe from the impacts of climate change, no region. That said, there are regions that'll be better prepared than others and there are two things that will make a region better prepared. The first one is, that they're not exposed to multiple climate risks that could hit the same region. So, for example the Gulf Coast of the US is exposed to hurricanes and storm surge extreme weather events. It's also exposed to drought in some instances, and it'll be affected by extreme heat in ways that the Southwest won't, because there'll be areas of the Southeast that will require more air conditioning than they used to as heat levels go up. The areas that are in the best position, just physically from climate risk are the areas that are temperate climates with lots of access to fresh water and just enough rain in the right places. So, some of the best regions long term will be around the Great Lakes and possibly North of the Mid-Atlantic up into New England, but far enough from the coast, so you're not directly affected by hurricanes and storm surge. The other thing that drives this risk assessment for regions is the adaptive capacity of those regions. So, it's the political will and the economic impetus to protect them.

Billy Grayson (25:57) So lower Manhattan has a significant climate risk, but that climate risk can be protected with a very meaningful but targeted an investment in a very small geographic region. And there's a lot of real estate value to protect, so you know that it's going to get protected as a counterpoint, the parts of the Gulf Coast in Texas, in Mississippi and Alabama, the climate risk is dispersed across hundreds of square miles. The cost to mitigate that risk is going to be higher than the real estate value associated with the properties at risk. So, it’s going to face a much different risk profile even though there are similar physical risk affecting that area.

Adam Hooper (26:39) And where are we at in the life cycle of seeing that materially affect investment decisions in investment philosophies? Are we seeing it yet? Is it still are early days in terms of investment thesis? How are those factors coming into play?

Billy Grayson (26:53) Yeah, I would say when it comes to market pricing, of commodity assets. We're not seeing it show up in the price of an asset. And the reason we are not there are just so many countervailing macroeconomic market forces that it just gets lost in all of the noise associated with other market activity. I think that we will start to see it more as the cost and availability of insurance against these risks starts to change. So, we're already seeing this in the southeast. We're seeing this in the west with fire insurance. We're seeing it in regions as dispersed as Toronto and Atlanta when it comes to flood insurance. Because insurance is repriced every year and for a commercial office, your tenant sign a 10 or a 20-year lease, and you may have 10 to 30 year debt on that. It's a really scary proposition to know that every year your insurance costs could either stay the same or double or you might lose your insurance completely or just have a different level of insurance that you can get in your market. It really changes the economics of a real estate investment, and so as these insurance markets start to change and it starts to affect the operating expenses of these properties in eroding value, you'll start to see it reflected in the price for those assets.

Adam Hooper (28:15) Yeah, I mean, that's interesting, right? Unpacking that a little bit seems like that's not necessarily an assessment of the fundamental risks involved. It's a reaction to an external force on that, right? Because insurance is gonna be more expensive. You're not able to pay as much for an asset, or you're gonna reduce the price of an asset. That's not, that doesn't seem like that's really acknowledging why the insurance is gonna be more expensive, right? Am I wrong in kind of thinking that there's still, even in that scenario, there's still kind of a fundamental lack of acknowledgement of the underlying issue.

Billy Grayson (28:59) I think with any real estate investment decision, you need to see a force affecting your proforma in a material. And so, if you are seeing a higher cost of capital, because a lender won't give you the same interest rate for a high risk property because they've started to incorporate climate risk into their real estate investment process. If you're seeing a loss of liquidity, because global investors have integrated climate risk into their analysis. So, the only people lending to you are the ones that haven't done climate risk analysis. And if you're starting to see tenants go to other buildings that are more resiliant. Because those tenants have a more sophisticated approach to assessing climate risk and mitigating it in their leasing strategy. And then your insurers are starting to price it into their insurance. These are all exogenous factors, but at the same time, they have the same effect because they're impacting your performant and material way. They're impacting noi, npv. So ultimately, they're gonna drive a decision for you to invest in more resilient buildings.

Adam Hooper (30:05) Yeah, it's fascinating and again, this will be a large topic of conversation at the fall meeting, so if listeners, if you're interested in learning more, I know I'm going to learn a ton at this conference and I'm super excited to get there and hopefully watch some of these panels as well. I know another, concept that you talk about when the initiatives is climate migration. Why don't you tell us a little bit what about what you mean with climate migration? Again, there's another paper that you, that you've put out recently that will have a link in the show notes that you did with Hyman, around that concept. So maybe tell us a little bit about what you're seeing on the climate migration side.

Billy Grayson (30:39) Yeah, so with increasing severity and frequency of extreme weather events, we've seen these in the news over the last year from the Gulf Coast of Florida and Puerto Rico, but also Pakistan, Bangladesh, Indonesia, and Egypt. There are going to become more and more places that are not cost effective to protect from an investment standpoint or are going to become uninhabitable because of the frequency and severity of extreme weather events and the long-term impacts of climate change on drought and extreme heat. So, we're already seeing climate migration happen. But it's happening in places like daca, Bangladesh, and Pakistan, and Jakarta, Indonesia, where they're actually moving their capital in part because of the impacts of climate change. And unrest in Syria and Egypt. Climate migration will continue to happen across the world, including in the US and Europe after extreme weather events as people get displaced and look to move to places, where they'll see less of a climate risk associated. Life or their ability to do business. And as resources become more constrained, there will be certain types of industries that will need to evolve out of certain regions because the material inputs for those industries are becoming more expensive. This could affect agriculture in the more and more arid west. It could impact heavy infrastructure in places like the Great Salt Lake, which is getting smaller and saltier, or it could be impacting commercial real estate and where people want to house their warehouses for logistics or corporate headquarters for class A office.

Adam Hooper (32:31) And, what can you give us a sense of the scale of some of these issues?

Billy Grayson (32:39) Yeah. So, according to the UN by 2050 there will be hundreds of millions of climate migrants. Most of those migrants will be leaving the city or agricultural regions in the global south and looking for a new place to live. In terms of internal migration in places like the United States, it's tougher to track and project. How many migrants there will be and where they will go. But it's gonna be driven by a combination of factors. It's gonna be driven by how bad drought and extreme heat get in certain regions, how frequent, hurricanes and wildfires get in other regions. And it's also gonna be driven by public policy and the investments that cities and states make to shore up infrastructure to make it more resilient.

Adam Hooper (33:38) And you mentioned by 2050. I think when we look at the challenge of just mentally wrapping your head around the complexity and scope and scale of these issues, it’s easy to feel like that's something to solve at a later date, right? Like how much of a now issue is this? And if it's as now as I'm assuming it is, what are some of the things that can be done? At a local or individual scale to start having an impact on these challenges?

Billy Grayson (34:15) That's a good question. I'd start by saying that 2100 is far away, but 2050 in real estate investment isn't as far away as we sometimes think. One example I'd like to give is that, most real estate investment trusts, they invest in a building and are looking to hold it for three to 10 years. But they're then looking usually to sell that to an institutional investor who may hold that property for 20 to 30 years. So, if your future customer is thinking about 2050, then you really need to build that into your strategy and investing in 2022. Otherwise, you may not have the people to sell to that you think you may have in 2030. The other thing I would say to this is it's just a fundamental about climate change. If we're going to turn the corner on the temperature increases that are driving this increase in frequency and severity of extreme weather events, we need to make meaningful progress by 2030. And 2030 is right around the corner. So, if we're not able to get close to having global emissions by 2030, we won't be on a path to get to Net Zero by 2050. And we will see even more impacts from extreme weather events and the longer Impact of climate change than we otherwise, would.

Adam Hooper: And so now that's maybe a good segue into the, the hopeful side of this conversation, which is getting to net zero. Tell us a little bit again, Net Zero is something that's a term that's been thrown out for a decade plus.  what, what do you mean by getting to net zero and what, what does that in the context of an investor's mindset or an operator's mindset, what does that actually.

Billy Grayson (35:54) Yeah, so this is hopeful we can do this, and we can get onto these paths in ways that are creative to value and cost effective. The Net Zero definition is still evolving, but essentially it means that you have a, a building that on an annual basis only uses as much energy as it can produce through renewable energy either being generated onsite or off. So, the net greenhouse gas emissions for that building on an annual basis is zero. So, buildings can get there in a lot of different ways.  the best first step is energy efficiency, investing in energy efficient mechanical equipment and lighting, and figuring out ways to run your building more efficiently. And then the next step is electrifying anything in the building that uses fossil fuel. That's often a more cost-effective step, and it's harder to capture the return on investment, but it's an important step on the path to net zero. It also will make everything else that you do on that path to net zero more cost effective.

Adam Hooper (37:00) And so that's from an ongoing operations perspective, right? What about the actual carbon cost of construction. Right. Of the materials of the supply chain to get to that you were talking about before, right? The understanding of supply chain. There's a lot of production that goes into a building, right? So, I guess maybe how do you look at that differently from a new build ground up development versus a retrofit of existing?

Billy Grayson (37:28) Yeah. So, up to 50% of the carbon, that's gonna be generated over the lifetime of a building. Comes from that embodied carbon. The carbon from building materials and construction. One challenge we have right now in real estate is that it's very hard for developers to track that carbon when they're building a new building. And it's even harder for people who are buying that building to account for that embodied carbon if they didn't build the building and they're selling it to somebody who didn't buy the building. The other challenge that we have right now is from a federal, state, and local regulatory perspective. With the exception of California, nobody is really regulating embodied carbon as part of a building's journey to Net Zero. Whereas over 30 cities are regulating the operational carbon associated with those buildings.

Adam Hooper (38:23) And I guess, I mean, that kind of gets back to the comment about the proforma, right? From the insurance perspective or the climate's perspective, right? There has to be a material impact to a proforma to make a real estate manager in their normal course of business change something. Right? And is there any financial incentive? And I guess where I'm kind of coming at this from is I think we've seen on our platform it's difficult to price in some of these ESG initiatives, right? It's hard when you're looking at something purely from an investment perspective, how do you price in some of these other factors that there maybe isn't a direct return on investment or incentive financially to do that. So, I guess how does that play into the decision making of an operating, an existing building with a retrofit or going above and beyond? When you're looking at developing something, what are the financial incentives or impacts of looking towards a more Net Zero future.

Billy Grayson (39:22) Yeah, ULI did some research on embodied Carbon about three years ago, and at the time, we couldn't find that incentive to drive lower embodied carbon in a material way. But what we did find is that it often costs nothing or only slightly more to reduce the embodied carbon of new construction and major retrofits from existing. Just through using what we do every day with reduce, reuse, and recycle. So, reducing the amount of virgin material that you're putting into a building, reusing any materials on site that can be helpful in the construction of a new building, even if that's fill versus actual building components. And then using recycled materials to help. Build your building often, especially with things like recycled steel, they cost virtually the same as non-recycled steel. And then the first thing would be to use different building materials. So, there are innovations in low carbon, concrete and in using structural and mass timber, in building instruction, as well as modular design and construction technologies that can help reduce waste or use rapidly renewable materials or, which cuts down on the embodied carbon and often also improves the economics of the project from a raw material standpoint. So, looking for those win-wins is the first way to take a big bite out of the carbon associated with embodied carbon and building materials and construction.

Adam Hooper (40:57) Yeah, and the point you mentioned earlier too of the buyers of these project on the tail end when you take it full cycle. If they're gonna be looking at this and considering it, you better be building it with that in mind. You better be planning for that. Because if you go through and you execute and your projects is for sale next to one that maybe meet some of those initiatives or has that, integrated into its systems. At some point there's going to be a more attractive purchase for the person that's looking out much longer term than maybe we are today. So, I think that that's an important piece too, that's interesting.

Billy Grayson (41:34) Yeah, on the operational carbon side, we're already seeing this show up in operating expenses because some of the leading cities have fines for non-noncompliance with their climate action plans. And some of these fines are fairly significant. So, for example, in New York, if you can't meet local law 97 by 2024, you could be looking at a fine of a buck to three bucks a square foot a year. And in Washington, DC with our Building Energy Performance Center, if you're not hitting that by 2020, You could see similar types of fines. So that's something that's pretty easy for a real estate investor to build into a cash flow analysis and again, if you have two buildings side by side, one is complying and one isn't, you put a cap rate on that dollar or $3 a square foot, and then you really do understand what the value is of a lower carbon building.

Adam Hooper (42:22) Yeah. And I guess that gets to the carrots or sticks, right? Which side are you looking at it from? And it seems like there's going to be some more stick wielding by regulatory bodies and I mean, I guess where you see that coming into the picture from a regulation or maybe even down to regulatory incentives rather than the sticks.

Billy Graysonn (42:46) Yeah, we're going to see more carrots and more sticks, and we need both. I mean, ultimately, we need, a high-performance building code that everybody needs to meet for new construction and we need to hit reasonable climate targets over time for all building types in all regions. It'll help us get to Net Zero quicker and more cost effectively. Not all owners will have the same ROI for making investments in this energy efficiency and renewable energy technology. So, figuring out ways to incentivize this, especially in hard to decarbonize sectors like multi-family and affordable housing. Or public buildings is going to be a really important part to getting to net zero. Like having and training the technical expertise to do the energy audits and to source and build the technology to decarbonize buildings is something that the industry can't do on its own. And so, the government's going to need to invest in that. And then being able to subsidize the technology that's going to help us make the most progress to net zero, especially technologies that might be uneconomical in some regions and some building types. Electrifying a gas multi-family building in the Northeast, those are going to be things where incentives are going to need to be combined with, regulatory enforcement to get us to net zero cost effectively.

Adam Hooper (44:12) Okay, so you heard it here first folks. More carrots and more sticks. So, we'll keep an eye on.

Billy Grayson (44:17) Yeah. And along with the carrots and sticks is transparency. And we're actually having a session at the fall meeting that's going to be a deep dive on the new SEC rules around climate disclosure. This is going to be a critically important part of what, decarbonization in a path that net zero looks like for the industry as the SCC requires all public companies to disclose scope one and two emission. And possibly scope three and possibly climate risk associated with their real estate portfolios. So, it'll be an interesting conversation with real estate developers and investors about what that's actually going to mean for their business strategy.

Adam Hooper (44:58) Perfect. Well, Billy, I know you've got to get going here, so maybe as we wrap it up, questions we always ask on the show as it relates to real estate. I feel like we've talked about a few of them today, but what keeps you up at night as you think about the future of real estate?

Billy Grayson (45:12) Yeah. Embodied carbon. You asked me about that. I don't know how we're going to tackle this 50% cost effectively as an industry, but I know it's incredibly important.

Adam Hooper (45:24) And then converse to that, what has you the most optimistic about the future of the real estate space?

Billy Grayson (45:28) There is, people talk about like money on trees. There's money lying on the ground. We just need to go pick it up. And there's really meaningful cost-effective things that people can do to drive energy efficiency and make their buildings more resilient. That has an ROI of that thousand of precents that has a payback of a year or less. So, people just need to take action and start making progress.

Adam Hooper (45:54) Perfect. So, I think that's a good spot to wrap it up. So maybe let listeners know how they can learn more about all the work that you guys are up to with ULI.

Billy Grayson (46:01) Yeah. To learn more about our research on decarbonization in a Path to Zero, you can visit our Net Zero Compendium or check out Knowledge Finder. It's And please come to our fall conference, October 24 to 26 in Dallas, Texas. Got more than a dozen sessions on climate change and ESG topics.

Adam Hooper (46:23) Perfect. And listeners out there, we will be at the show doing some interviews and we'll bring the best of that to you here on the podcast. But definitely recommend you check it out as well. Look for links in the show notes or go to And, Billy, thank you so much for, for coming on today. Really appreciate the conversation and the time.

Billy Grayson (46:43) Yeah, thank you for having me.

Adam Hooper (46:44) All right, listeners, that's all we've got for today. As always, send us a note to with any question or comments and with that maybe we'll see you in Dallas.

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