Fifth Wall’s Post

Transcript

Let's turn to Diana Olick for more on that with a special guest, the CEO of 5th Wall, Brandon Wallace. They're joining us live from their conference on AI and real estate in New York City, and he's got a a particularly interesting spot here, Diana. He does, Kelly, That's right. With over $3 billion in assets, 5th Wall is focused on the intersection of real estate, technology and clean energy. So tons to get to. Brendan, thanks so much for joining us. I wanna start with office first. Several of your limited partners names like CBR E Cushman and Wakefield Hines, all in the office space. You're raising some concerns about what's going to happen if DOGE hits that space, specifically around federal office space. So the US government, the GSA is the largest tenant in the US. They lease about 150 million. Square feet, $5 billion of annual rent, and it's estimated today that about half their leases are cancellable in six months because nobody ever expected this to happen. And so when you think about DOGE looking for opportunities to cut cost, combine that with their back to office mandate, you could see a lot of space coming back and actually flowing into the especially DC office market. And that could have a really challenging effect on the office market that's already struggling today. But it's not just DC, right? It's nationwide. Yeah, the US government leases. Space everywhere and so I think landlords across the country are specifically looking at what would happen if the US government gives back this much space. So what are your partners telling you and in their investments and what they're looking to with the clean technology in office and trying to you know, the, the recovery has just really begun. We've done some office transitions, etcetera, but what are they telling you? I think people are waiting and seeing right now they're waiting to see what is those going to do? How important is office going to be for that mean you also have to remember the US government is a major office. Owner itself, so there's probably a huge opportunity for the US government to potentially sell off assets and form a REIT. So there's an enormous real estate play in and around rendering efficiency on the federal government that I think is just starting to come into focus right now. Interesting. And you'll also have a big climate fund that is half a billion dollars invested in decarbonizing the built environment. And some of those companies you've invested in, they're part of our Clean Start series. We've covered some of those. I spoke with you a couple of months ago pre election, you were very concerned about those. Companies tell us about. Yeah, I think everyone should be concerned right now. A second Trump administration is absolutely adverse for climate attack. Now, it's not quite that simple because when you think more broadly, the imperative for the real estate industry to become more efficient, to have more efficient homes, more efficient office buildings, more efficient industrial parks, that is something that's a permit trend. It doesn't relate necessarily to saving the planet. It's simply about saving businesses and saving customers money. And that's just good business. So the first thing is certain parts of the real estate. Industries need to decarbonize aren't based on an ESG agenda. The second thing is very deliberately huge parts of the IRA, which has been a major benefit to where we invest in climate tech. They've been focused on specifically red districts. So the chief beneficiaries are actually the red state. So it's unlikely the IRA or major parts of the IRA's are going to get repealed. And the last thing is Trump's trade policies, specifically with tariffs on China, it's gonna massively bolster US manufacturing of batteries and solar, so. It's a mixed bag in climate, and I think you'll see mixed results. But clearly, I think a lot of people are very nervous because there's gonna be a real sentiment shift today. And Kelly has a question for you, Diana. Thanks, Brendan. I just want to circle back to what you think could happen with government real estate. I mean, this is real estate that by many accounts is going unused in large parts. So just talk me through what you think the implications are there. I mean, the implications to of the real estate industry in the US now facing a pullback in federal demand, it would be profound. I mean, the most profound effect would obviously be in Washington, DC, but I think you'd see it nationwide. And it's because the federal government is the largest and most important and highest security tenant in the US And so today, the office industry is grappling with big existential questions like, do we already have too much office space? And if the federal government starts to signal they're going to give back? Case that would be a very negative move and Brandon I just want to get to the last thing which is we are at your AI day. Tell us how you're seeing AI impact the real estate market specifically because sometimes people don't get the connection. But in a new administration with different questions surrounding AI. How is that going to affect what you do. So I think most people when they think about AI and its impact on real estate immediately think of like how are large language models is going to make the business of operating real estate assets better, faster, easier, cheaper and all that's true but what's oftentimes. Mr. These second order effects, which is how is AI going to change the demand for space? This fundamentally the real estate industry is about how we use space to create the economy. And you look at the last revolution, the information technology revolution and the Internet. It spawned Prologis and the major industrial REITs in the back of ecommerce. It spawned Digital Realty, one of our strategic LP's, the largest developer of data centers. And so one of the big questions now is how is AI actually going to change demand for space? Our office workers that are today like. In offices, these are knowledge workers. Are they going to be replaced by large language models in data centers? And so I think the real estate industry is just now grappling with some of these big questions, not just about how is AI going to make our business more efficient, but how is it going to fundamentally change the business of real estate itself in certain sectors within it. So much more to talk about, but we're out of time, friend. And thanks so much for joining us. Brandon Wallace of Fifth Walk. Kelly, back to you.