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No ESG Transformation without a Robust Data Basis

Understanding the Status Quo

Which basic requirements should be met to permit economically and ecologically sensible decision making in the real estate business? What challenges do asset managers and property developers like Trei Real Estate face at the moment? Trei has set itself ambitious goals in order to make its existing real estate portfolio and its property developments sustainable. In its effort to process ESG data and in the operational action planning, Trei is backed by Predium. The Munich-based company developed a software solution that supports the process of compiling ESG footprints of buildings and refurbishment road maps as well as the associated reporting. Interview with Ivonne Mundil, Head of Sustainability & ESG at Trei, and Jens Thumm, Co-Founder & CEO of Predium.

Ivonne Mundil, Trei has a large portfolio of existing real estate. What kind of ESG measures do you currently prioritise for your existing real estate?

Ivonne Mundil: Before we select any measures, we need to have an overview of the ESG-specific data. The focus here is primarily on consumption data, which, even when already available, often take the form of Excel spreadsheets or need to be exported from various system landscapes. The collaboration with Predium helps us establish the status quo and to derive the relevant measures in a strategic approach. In a parallel development, we will focus on the ongoing digitisation of our portfolio and consumption data in 2024. This will involve the introduction of smart metering and the negotiation of green-lease clauses with our tenants, the objective being to have the associated data basis at our fingertips in the future.

Jens Thumm, you support companies like Trei in their efforts to conduct status quo analyses of their portfolios. How do you proceed here?

Jens Thumm: Our business brings us in touch with a number of asset managers who, like Trei, face the challenge of having to map their ESG-related data. At issue are not just consumption and emission figures, but also principal information on the properties, e. g. which type of thermal insulation and M&E engineering a given building uses. Under the approach pursued by Predium, all relevant data are aggregated while unavailable information is estimated using in-house algorithms. The resulting data basis enables us to forecast the refurbishment costs for properties and to venture risk assessments. Once the ESG status quo has been established, it should be used to derive strategic measures for individual properties or entire portfolios, as the case may be.

Ivonne Mundil: This is exactly the approach that Trei is taking. For instance, once we have scanned all of our energy performance certificates, we can further qualify this data basis by gradually adding real data, using the calculations done by Predium. This way, we create a basis for analysing the portfolio and for initiating sensible measures step by step.

Trei’s portfolio includes a lot of retail properties. In the ESG context, which aspects of this use class requires particular attention?

Ivonne Mundil: It is not so much the use class that requires particular attention but rather the terms and conditions of the leases. Many of our tenants signed so-called triple-net leases. While these have many advantages from a business point of view, they limit a landlord’s influence. You see, they delegate responsibility for the operating costs and even for most of the maintenance to the tenant. As a result, Trei cannot directly access the consumption data on the tenant side. The only way to obtain the data is by engaging our tenants in dialogue and to jointly determine relevant green lease clauses. Another peculiarity concerns the energy performance certificates: In the “residential” asset class, you have the well-known ratings of categories A+ through H, but there is no direct equivalent for retail real estate in Germany, which makes the rating and clustering of such properties more difficult.

Jens Thumm: It is indeed a problem that there is yet no standard for the energy scores of retail real estate that would let you compare the different energy scores at a single glance. To address this issue, we filed average scores on the Predium platform that enables Trei and other companies to compare buildings with each other.

Predium provides forecasts for trends in energy costs and carbon levies. How accurately and for what length of time can you predict these?

Jens Thumm: We can make predictions for short and medium periods of time, but not for the decades ahead. This is explained not least by the dynamics of the regulatory framework. If you take the example of Germany’s ongoing budget debate: The Federal Government resolved on short notice to raise the carbon price to 45.00 instead of 40.00 euros per ton as planned, starting in 2024, which obviously necessitates an update of our software. We help asset managers to be more flexible when positioning themselves. For instance, we take short-term legislative changes into account, so that asset managers can respond accordingly.

Ivonne Mundil: That is a very important aspect: Everything we do now calls for a dynamic point of view. The Predium tool assists us in this regard because it includes the option to test scenarios in terms of efficiency. It can check, for instance, whether insulating the façade or roof is more efficient than switching to green electricity. This provides us with an overview of the results that we may achieve collectively for the portfolio. In the next step, we can enter these scenarios as measures into a decarbonisation road map and define the targets for the international portfolio.

Trei is not just an asset manager but also a property developer. What sort of challenges do the tightening regulations pose for you?

Ivonne Mundil: We see the complexity and dynamic nature of the statutory requirements as the biggest challenge. The assets of our existing property portfolio are located in Germany and Poland, but even inside the European Union, the regulatory requirements can differ significantly. We have to cope with a plethora of provisions that are not just complex but also subject to change because they keep being updated. This regulatory dynamic causes a high degree of uncertainty because we just don’t know what changes or innovations will be next. Property developments in the housing construction segment can take four to five years or even longer from the start of planning to completion, depending on whether the development rights are already in place or a municipal development planning process is still pending. Any shift in parameters during that time period will have ramifications for the construction costs or the rate of return.

Jens Thumm: The ESG topic remains fraught with plenty of uncertainty. I always like to compare the situation with digitisation: Just 10 to 15 years ago, everyone was wary of the subject and even more so of the implementation. But anyone who put paper and pen aside and gave a new software or program like Excel a try quickly noted how much easier things become. I’m convinced that we will manage real estate according to ESG criteria as a matter of course within the next ten years, just the way we have come to use digital services today.



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