Environmentally Conscious Investors are Eyeing Proptech

December 7, 2022

Source:  Austin Business Journal

Smart technology is everywhere these days, from personal devices like voice command headphones to business ecosystems tracking data to improve client experiences and optimize operations.

Increasingly, smart tech is being integrated into real estate developments. A smart water-leak detector inside a toilet can alert a property manager about an otherwise undetectable problem before it turns into a larger, more expensive one. Smart thermostats can help reduce energy costs by allowing tenants to adjust energy usage remotely. Smart locks improve security and make key fobs obsolete. Smart electric vehicle charging gives tenants the option to help reduce their carbon footprint.

This infusion of technology into real estate is referred to as “proptech” or Smart Building as a Service (SBaaS), according to StoryBuilt, a leading urban infill residential and commercial community developer. The company is using these technologies to reduce costs at its properties as well as improve the resident experience.

Investors seek environmentally sustainable, tech-driven buildings

Because these technologies lead to more sustainable communities and increase data about water and energy usage, investors who place importance on ESG (environmental, social, governance) are drawn to these types of developments.

“More often we’re seeing investors want to be good stewards of their capital and won’t invest in a project unless it is viewed as sustainable and there’s data to back that up,” said Chad Shepler, StoryBuilt’s chief operating officer. “Right now, we’re in the friendly zone where these technologies aren’t required by federal or local regulations, but we’re seeing more interest in grading properties for energy efficiency. Investors want to be a part of developing properties that are rated highly for environmental sustainability.”

An example of the grading Shepler refers to can be found in Seattle. The city’s Office of Sustainability & Environment assigns properties around the region an ENERGY STAR Score on a scale from 0 (least efficient) to 100 based on the energy a building consumes and the resulting emissions.

Given the role buildings play in an energy-efficient future, more cities are expected to follow suit. Reports show buildings are responsible for 40% of global energy consumption and 33% of greenhouse gas emissions.

“You could quickly see cities shift to penalties and fines for buildings that aren’t energy efficient,” Shepler said. “Residents and commercial tenants are drawn to buildings with technology-driven features that are helping to drive sustainability initiatives.”

Boosting proptech in some of the country’s fastest growing cities

StoryBuilt launched in 2001 in Austin and has since expanded into Dallas, Seattle and Denver. It delivers unique architectural communities in thriving urban markets. The company has built more than 50 communities to help thousands of homeowners and residents live in the cities they love.

Currently, StoryBuilt has a $3 billion pipeline of projects. The developments range from single-family homes to 10-plus acre planned communities that can include commercial buildings, condominiums, apartments, townhomes, retail and residential mixed-use, including hospitality.

As the company grew over the years, it brought the design, construction, engineering, sales and marketing and property management work in-house. As it continues to expand its SBaaS offerings, including performing that work for other developers, it plans to acquire companies that will facilitate the connection of smart devices over both Wi-Fi and cellular networks.

“We’ll continue to vertically integrate development components inside of the business,” Shepler said. “We also have the ability to make smaller investments to acquire platforms that will allow us to develop our SBaaS model in other cities.”

Over the next decade, StoryBuilt expects to expand its SBaaS services to 50 markets.

StoryBuilt’s investment opportunities for accredited investors

In recent years, StoryBuilt has been active lining up partnerships to bring its projects to life. For example, a $1 billion joint venture with a large international private equity and private real estate firm will complete more than $1 billion of multifamily, residential for-sale and mixed-use real estate projects over the next four to five years. There are other joint ventures with pension fund advisors in the portfolio, the most recent being a $44 million joint venture to fund the residential portion of Ellie May, a new and dynamic mixed-used community in East Austin.

Currently, StoryBuilt offers a few opportunities for accredited retail investors who want to benefit from real estate projects in fast-growing urban communities.

  • Land: Land acquisition and pre-development investments with annualized returns in the 12-14% range.
  • Projects: Vertical development projects for multifamily developments in the highly desirable urban core.
  • Corporate notes and preferred equity: Senior notes targeting low double digit returns with current pay are an option to go alongside preferred equity, which provides a broad interest in the full portfolio of for-sale and for-rent properties across Texas, Denver and Seattle. Investors receive a 6% preferred return, plus a percent of company profits. Targeted annual return is around 10%, plus a 25% exit premium minimum on shares in the occurrence of a liquidity event. If a liquidity event happens in the next three to five years that adds a 5-20% annual upside to the paid return.

Anthony Siela, co-founder and CEO, said StoryBuilt offers a private equity opportunity with a profitable company that has a track record of success in real estate and technology.

“We have a huge market in front of us, both from the real estate and technology standpoint with the talent that can execute the development side and tech services side at scale,” Siela said. “It’s also an opportunity for investors to improve the urban core of their cities, make buildings more sustainable for the future and earn a profit from doing so.”

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