Ex-Goldman Sachs Banker Plans to ‘Massively’ Scale New Steyer Venture
Ex-Goldman Sachs Banker Plans to ‘Massively’ Scale New Steyer Venture ·Bloomberg
Frances Schwartzkopff
5 min read
(Bloomberg) -- Joseph Sumberg, a former managing director at Goldman Sachs Group Inc., is betting his career on the idea that climate change is about to turn the real estate market on its head.
Since late 2022, the 42-year-old has been working with billionaire investor Tom Steyer to build strategies around the unique challenges facing real estate as the planet heats up. As founder and head of the real estate division within Steyer’s investment vehicle, Galvanize Climate Solutions LLC, Sumberg is in charge of buying up properties and making them climate-proof.
“I am convinced that this is the biggest opportunity in commercial real estate to make money,” Sumberg said in an interview. It’s “why I didn’t stay at Goldman,” and it’s also why “I bet my career on it.”
The real estate market — especially the office segment — has been through a turbulent few years since the end of the pandemic. Higher interest rates combined with uneven occupancy rates have left many property owners struggling to survive, triggering a wave of writedowns.
Climate change now represents a new cycle of risk for the real estate market, and many property owners are starting to realize they’re unprepared for its fallout.
In April, the Biden administration unveiled the first-ever US national plan for decarbonizing residential and commercial buildings. That coincided with the passage of the revised Energy Performance of Buildings Directive in Europe. It’s a shifting policy backdrop against which real estate investors have started acknowledging they hold sizeable portfolios of stranded assets.
Helena Rivers, the net zero lead for Europe and India at Texas-based AECOM, which provides infrastructure consulting services, says investors in the US are actually showing more willingness to allocate capital to greening buildings than their counterparts in Europe.
They realize it’s “going to make financial sense,” and therefore they “just crack on with it,” she said. In Europe, meanwhile, investors are still showing some “reluctance to jump in both feet first” before the directive on energy efficiency is adopted across the EU, she said. Member states have roughly two years to roll out the directive’s multiple requirements.
Climate resilience is increasingly being factored into decision-making by institutional investors as regulators tighten requirements, said Thierry Laquitaine, director and head of sustainable investing at AEW, the real estate investment unit of Natixis.
“The day that you want to sell your building, the buyer will ask you where do you stand regarding those regulations?” Laquitaine said. “And you will also have a problem with your tenants if it’s not compliant.”
Sumberg says his interest in making real estate greener is based on a conviction that doing so will prove a lucrative business.
“I’m a real estate investor. I’m not a climate evangelist. I’m not a tree hugger,” he said. “I didn’t spend 15 years at Goldman Sachs without learning that capitalism is the absolute only thing that investors focus on, and additional profits and differentiation are critical.”
Meanwhile, the insurance industry has been retreating from properties that are exposed to extreme weather risk, and there’s evidence that banks are now starting to reconsider loans for real estate that’s likely to see its value drop as a result of the physical fallout of global warming. Now is the time for investors to pre-empt these developments, Sumberg says.
In June, Galvanize made its second real estate acquisition, “with the aim of optimizing energy-efficiency savings, generating renewable power and increasing asset value,” the firm said at the time. The industrial property, One Gateway Boulevard in New Jersey, will form part of a “traditional value-add strategy” as Galvanize invests in its decarbonization, it said.
There’s a “huge opportunity in today’s real estate market and also the sustainability market,” Sumberg said. “We want to scale this thing massively and rapidly.”
Galvanize’s targets for such investments are currently centered in New York, New Jersey, California, Maryland and Massachusetts, he said. “There’s a ton of low-hanging fruit in these top-tier markets.”
How quickly property valuations react to climate-related threats remains unclear, though, and Sumberg acknowledges he’s been surprised by slow market responses in the past. For example, the continued demand for property in Florida, despite clear signs of weather-related risks associated with living there, has been eye-opening, he said.
Sumberg, who grew up in Miami and now lives in New York, describes what’s going on in his childhood home as “breathtaking.”
The growth in investment and population is hard to square with the fact that “it’s very difficult to get insurance on many homes that is reasonable, frankly, or at all,” he said. It’s a disconnect that he worries has the potential to suddenly catch people off guard.
“I love Miami, but I don’t think that is a great long-term investment, in many cases, for this climate issue that we’re talking about,” Sumberg said. “But in true sort of real estate investor fashion, we’re not going to learn our lesson as real estate investors until we get absolutely smacked in the face.”
For now, Floridians are likely facing one of the most active hurricane seasons in recent memory, according to meteorologists. For 15 consecutive months through June, global sea temperatures hit all-time seasonal highs, a development that has dangerous implications for the Gulf of Mexico and Florida.
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People will have to wake up and react to the risks posed by climate change at some point, Sumberg said. And when they do, their perspective on where to live and how to weather-proof their homes will likely change.
“I hope I’m not right,” he said. “I hope sea levels don’t rise. And I hope that insurance covers homeowners and commercial properties that are being built really sort of in the eye of the storm. But I would imagine that some people are going to be pretty upset when they get wiped out by the next hurricane and they’re not covered by insurance.”
And that has enormous implications for property valuations.
“I think that climate is going to be the single most significant thing to impact commercial real estate in the decades to come,” Sumberg said.
(Adds comment from AEW in 9th, 10th paragraphs. A previous version corrected the description of Miami in 16th paragraph.)