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Fifth Wall's Wallace sees fintech as next step in the climate battle, weighs debt fund

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Mar 21, 2024
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Photo Illustration: Tiffany Herring/Axios; Photo: Roosevelt Nguyen/Fifth Wall

Major real estate companies have been slow to decarbonize — leaving an opportunity for fintechs and financiers to speed up the process, Fifth Wall CEO Brendan Wallace tells Axios.

Why it matters: Real estate is responsible for about 37% of carbon emissions, according to a recent UN estimate, and Wallace sees a shortage of willing capital as the main hang-up in lowering that figure.

What they're saying: "The technology now exists, and it's commercially viable, but it's not being deployed," says Wallace. "That's where fintech becomes the unlock."

Context: Climate fintechs raised $2.3 billion of a total $285 billion last year, according to CommerzVentures and Crunchbase data.

This interview has been lightly edited for brevity and clarity.

Fifth Wall is known for its real estate focus, and you're very bullish on climate fintech. Where do you see opportunities?

  • Fifth Wall's venture fund tries to pick where we think the real estate industry is gonna spend money — that includes smart glass, carbon-neutral concrete, better HVAC systems, and better motors for buildings.
  • [That hardware] is part of the solution, but not all of it. The big problem is deployment. Whenever you go to climate conferences, people say, "Enough with innovation; let's talk about deployment."
  • One reason is that most real estate owners don't want to put up the capital. Some estimates say it will cost $18 trillion to decarbonize the real estate industry. That can be addressed through companies that finance factories, malls and multifamily buildings the way SolarCity financed the residential space.

What are the macro trends driving your thinking?

  • Real estate is about 40% of CO2 emissions, and governments are using taxes as an inducement mechanism to drive the adoption of all this clean technology. The really unique feature of real estate is that, unlike other industries, you can't move it. If you don't like regulations in New York City, you can't move the Empire State Building.
  • At the same time, the largest owners of REIT stock — Blackrock, APG — have said they will preferentially deploy capital to low, or no carbon footprint real estate, incentivizing real estate owners to reduce the carbon footprint. Major tenants — Google, Netflix, Amazon — have all very publicly committed to decarbonizing.

The technology exists, but to you the financing is the key issue. Fifth Wall has about $800 million for its climate strategy, with the fund first announced in 2022. How much have you deployed?

  • We've deployed about 60% to 70% of the fund. Hardware companies account probably for 40% of where we've deployed that capital.

To your point, climate tech is so hardware-heavy that it can be hard to attract venture funding. Have you ever considered raising a debt fund?

  • We are actively considering a debt fund in two regards: debt on the project financing side, to finance the building of factories, but also a kind of debt and equity fund.
  • It would allow us to go to real estate owners and say, "Hey, owner of an $100 million multifamily unit in Indianapolis, we're willing to step in and install solar on your roof. We'll sell you energy at this price and store that energy. We'll monitor selling that energy back to the grid."
  • We've actually started to do some debt deals, some out of our existing funds. We've also brought in large sovereign investors to provide project financing to Fifth Wall portfolio companies on a direct basis.
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