Ex-Goldman Banker Targets CRE Deals Left Behind in Trump Era

(Bloomberg) -- The former Goldman Sachs Group Inc. banker running billionaire Tom Steyer’s green real estate unit is targeting deals he says have been left behind by investors spooked by the anti-green rhetoric of the Trump administration.

Joe Sumberg, who’s overseen the commercial real estate arm of Steyer’s Galvanize Climate Solutions LLC since leaving Goldman in late 2022, said it’s clear to him that “the political and cultural pressures are causing many investment managers to pull back on resources and focus surrounding sustainability and climate.”

But “we aren’t pulling back,” he told Bloomberg. “We are simply picking up the money they’re leaving behind.” 

Sumberg is betting there are sizable profits to be made by buying and renovating energy-inefficient buildings and flipping them for resale at a premium. The firm’s real estate division has bought three industrial logistics properties so far, and plans to spend $1.85 billion to acquire and retrofit several more over the next three years.

As an investment strategy, green real estate now faces an entirely different political reality than under the Biden administration. Donald Trump, who has characterized climate change as a hoax, is using his second term in office to take a sledge hammer to green policies, including areas that directly affect real estate such as subsidies for solar panels. 

The new political reality has had a chilling effect on green finance in the US. Banks and asset managers have left climate alliances in droves, and talk of sustainable investing has been drowned out by a pro-oil and pro-gas agenda best encapsulated by Trump’s drill-baby-drill mantra.

Sumberg said Galvanize’s approach isn’t ideological, but profit oriented.

“We buy something that’s broken, we fix it, we make money,” he said. “But it has to be a bullet-proof, lights-out strategy.”

Sumberg didn’t provide details of deals currently in the pipeline, but Galvanize has previously said its real estate investment focus is on New York, New Jersey, California, Maryland and Massachusetts. And in cities and states with local regulations on energy efficiency, there are clear signs that other property investors are seeing opportunities in green real estate. 

In New York, for example, Alloy Development is planning an apartment tower in downtown Brooklyn that will far exceed city and state energy-efficiency standards and be the tallest building of its kind in the world. Alloy has found it’s “not materially more expensive” to build to meet high levels of sustainability, “it’s just process-wise more difficult,” according to Jared Della Valle, an architect who is Alloy’s chief executive officer and co-founder.

Colin Curzi, head of building policy at RE Tech Advisors, a firm that helps clients decarbonize real estate, says about 10 jurisdictions spanning New York City, to Boston and Seattle, have set prescriptive targets — including fines — that landlords are required to comply with. 

Upgrades that Galvanize has invested in include replacing fossil fuel-fired systems with heat pumps, or setting up solar arrays as a backup for disruption on the regular electricity grid. 

Sumberg said that by relying on science to analyze structures and the systems that power them, he can save money. One property acquired by Galvanize had a 15-year-old solar array that appeared not to work and was in line to be ditched. A member of the science and technology team, who holds a PhD in physics and supports Sumberg’s ten-person investment team, figured out that the problem lay with the inverter, without even setting foot in the building. 

The device, which converts a direct current to an alternating current, was replaced and the array was fixed. In its first year of ownership, the firm expects to generate approximately $300,000 from the solar array, Sumberg said.

About three-quarters of commercial real estate in the US was built more than 25 years ago and is now approaching the end of its working life. Some landlords have delayed refurbishments targeting energy efficiency in response to high post-pandemic vacancy rates and elevated borrowing costs. Others have balked at the cost of green renovations, while many investors remain wary of greenwashing risks, according to Sumberg.  

For those reasons, the CRE market remains under-invested, leaving properties with inefficient energy systems in place. 

“The US is littered with these clunkers,” Sumberg said. “People are paying us more money not because buildings are net zero but because they are more efficient and better performing.”

Ben Evans, federal legislative director of the US Green Building Council, a nonprofit, said there’s now a concern about how the Trump administration’s push against green policies and potential tariffs on aluminum, steel and Chinese imports will affect builders, developers and construction companies.

“If prices go up, it will chill investment,” Evans said.

The Inflation Reduction Act, signed into law by former President Joe Biden in August 2022, significantly improved tax incentives for energy efficiency in buildings. Such measures have enjoyed bipartisan support, but now “there is risk obviously that the new leadership wants to repeal some of those incentives,” he said. 

For now, however, the US is performing better than Europe in the sustainability of some of its buildings. Over the past five years, energy-use intensity in US office buildings declined 20.2%, compared with a decline of 18.3% in the EU, according to a recent study. That’s as Europe relies more on regulations to restrict emissions, while the US has tended to focus more on incentives to boost investments.

Sumberg’s team, which focuses on the US market, says it wants to achieve 100% reduction in operational emissions across the portfolio, decarbonizing buildings within three years of ownership, and selling them for a profit within five.

“If we don’t get to that goal, we forfeit economic incentives,” Sumberg said.

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