Interview with Jens Böhnlein

Re-Building Europe (RBE): Thank you so much for joining the interview today. We have Jens Böhnlein with us, Global Head of Asset Management and Sustainability at Commerz Real. First of all, a warm welcome and I would start with our first question, Jens. There is currently a crisis in real estate. We all feel it. There are several indicators that the real estate business hasn’t been in a crisis for quite some time and we wonder how do you on the one hand manage investor confidence in your funds, assets in general and your portfolio, while on the other hand the crisis goes beyond the real estate market and impacts the end user so that currently people have to watch every penny at the end of the month. So how do you incentivize investments in the long term?

Jens Böhnlein (JB): I will give you two answers, given that we are operating different type of funds. Retail funds, which are open to the public, allow people to invest small amounts on a regular basis. Although there are other options, I believe there is a continuous push into real estate investment given the long-term perspective. Given the structure and the nature of the investment, you should always take a longer-term perspective if you are investing in real estate than if you are investing, for example, in Emission Trading System or in liquid assets. People have tended to forget this over the past couple of years and simply believed that there’s a push for an instant upside on the investment over very short periods. But real estate is not (always) short-term, as I said, it’s long-term, and you have to identify ways to manage, position and rebuild it in the same way as you are considering to Re-Building Europe. This is not something you can do in one day. Bringing back confidence into the market will be key: Do people believe still believe in the asset and how can you demonstrate that this is really a good investment even considering all the various discussions around return to the office and the emergence of the home office? And I believe strongly that confidence will return to the markets given that the office will not die. We just have to deal with the fact that there are numerous offers on the market to work, and yes, there will be offices that are no longer required, but that will mostly be because the location is no longer fit for purpose, or because of poor quality. And investors will understand that this is also an opportunity. Crisis is always accompanied by opportunity. Prices have dropped significantly in some markets as per today, so there are plenty of opportunities out there either to redevelop existing properties or invest in locations that were inaccessible in the past. Nevertheless, there is clearly a concern around real estate right now, but I think that we, as an industry sector, can provide long term and good solutions. We can already see that institutional and private equity investors, in particular, are looking at markets to see where the opportunities lie.

RBE: Thank you. I have two questions building on that. Let me start with institutional investment. You said that the office will not die. Nevertheless, we do see a reduction in demand and the office is like a sick person at the moment. But in my understanding, money never gets lost – it’s like energy, it just shifts somewhere else. Where will it go? What assets become relevant to you now, for institutional investors? And moving away from the office, what’s most ROI friendly at the moment?

JB: This depends very much on the type of office product you’re offering, but generally, I would say investors are actively seeking investments in cash stable investments. And if you merge the opportunity with renewables and real estate you might be in a position to offer something that aligns to what you need for the future. It ticks the USP box, ticks the box in terms of energy and CO2 footprint, and also give you a stable cash flow in addition to existing lease contracts. I still believe in the office because you have to have a place where people can meet and collaborate – that’s the soul of a company. And it simple still more efficient in terms of fast collaboration and communication. This may not be the right answers for all type of work patters. But why would companies try to bring back people into the office if there wasn’t a real case behind?  Maybe one day the office will all be virtual – I don’t know, but I doubt it at this stage. If we have that conversation in twenty years’ time, we might have fully electrical devices and won’t need any physical interaction anymore. But wouldn’t that be a scary future? From today's perspective people love to be in great places – and that’s why we still need to have places where people can meet. I’m somehow concerned about focusing on little bubbles too much: It’s either retail stores or a hotel, or an office – and in my view we will see some elements to merge significantly. What will the office look like in the next 10 years? I think it will be a place that not only has a gym or a kindergarten, but is also attractive to people. It is as simple as it can be – it just has to be better than being at home. If the workplace at home is more comfortable and quieter and if the food is better and you can meet everyone virtually, why should you come to the office? So you have to turn the whole thing around: Companies should be inviting: “People, we want you back in the office, because…” Then you attract the right people and talent and have people who support the corporate mission. So the answer for companies is to have a great place, great workplace, great leaders and good community and operations – let’s call it an “Instagramable place” - then you’re going to be there.

RBE: So a cultural aspect… When you’re talking about ESG and energy – regardless of the asset – how do you manage to combine profitability and sustainability? Because I feel that a lot of people think that investing in sustainability is an issue. What is your experience? What are the numbers? Is it a worthwhile investment? Do you see returns?

JB: There are two perspectives. One is today’s opportunity perspective, so how can I position my assets potentially better than my competitor? If you get that right, you also cover how you work, live or shop in the building and how the building sits in the environment and interacts with the urban community. And if you do that well and you promote the offering, you will very likely have one of the top tier buildings in the city because people love what you do and people will buy the story. And buying the story always means better profits and better value, because you probably have one of the best-selling buildings or best-leasing buildings in the market. If you come from a risk perspective, then you should have a horizon of say 10, 15 or 20 years, so climate change is not going away, it’s not a headache. It is something that will remain. You only have to open the newspaper to see that that the world is changing dramatically in some areas and given that perspective on the 2050 timeline, from a risk perspective you will always have to ask yourself if you buy that asset, will it fit into my overall strategy? And how much will I have to spend in 2026 or 2030 if I find an asset which is not compliant? And it is not even clear what compliant means, because no one really has defined sustainability or ESG-compliance for a building. Nevertheless, I think there’s a lot of opportunity if you just do things right because the building will find its tenants. And given that the CSDR acts will come into force in less than two years, big companies will have to report on their ESG activities. This will be a gamechanger for the market, because suddenly some of the information will be public and comparable. A company’s carbon footprint will impact the company’s image, and if you look at the US, a lot of companies are actively working on reducing their carbon footprint, as are companies in Germany and some European countries. And if you’re not doing well, you will be kicked out of the 1.5 degree target decree initiative SBTi like Amazon was. It might not yet influence the value of the company today, but it certainly will in the next decades. So as an investor, we have to identify the right opportunity and that might be also building a new building in addition to converting. If I built a building today it would definitely fit into the 2050 perspective. If I bought an existing building, I would try to evaluate what I have to invest to make it 2050 compliant. But if you are in position to merge real estate and renewables that might be the right answer because it would be an even more profitable investment. And coming back to your first question, how can you do it? Nobody is asking you to do everything within 24 hours. So if you take the long-term perspective to 2050, you have to start now, but you don’t have to do everything at once, and we’re here to help you identify the right measures so we can proceed it in a commercially viable way. The next 5 to 10 years will be critical and will define some of the key turning points.

RBE: I know that you are one of the most innovative asset managers, also when it comes to digitization. When you are assessing an established building, my very basic question is, “Is all the data even available?”

JB: Unfortunately not, because real estate hasn’t become 100% digital yet, but it’s getting better. You should always consider having a digital twin for your building, because it will give you so much more flexibility to operate it in the future, if you have the chance to build it – even in a “light version”. But it’s not yet a real asset, because most of our operations in today’s word are still done in the same way as thirty years ago. If you want to change that, you have to also change operations. That’s something we are working on. In general, I would say there’s more data around that we can actually digest. Some of the buildings will probably have more sensors that you believe, and the question is what are you going to do with all that information? So you have to develop models to use that data. I believe the real estate sector now has a basic understanding that data is really important. I’m trying to promote a view that there are three elements that interact: The data, which is the new item, the tenants, and the real estate itself. These are the three most valuable assets. And we are working on that digital part and have just kicked off the cooperation with Bosch, which combines these elements in an ecosystem. The idea is that we are going to use this platform for more companies that can work with the data, so it’s a bit like an Apple store: You can access the data and we don’t know what solution is out there yet, but we want people to have easy access to the system. And we’re not in a position to pilot every single small solution in every building, so scale it up, get faster, and get to a more data-driven mode of building operation.

RBE: That makes sense. Bosch technology solutions is mastering that data, that sounds amazing! That’s not currently standard business practice. How do you plan to involve other stakeholders? Because if I understood correctly, the platform only works if the whole supply chain is included, and everyone is willing to be open. What’s your strategy for getting them to be open?

JB: That would be a question for Bosch, but we want companies to join the platform. We’re just adding our knowledge around management and operations and we have done the pilot with them, but in order to succeed it will be a matter of scale and acceptance to the market. And if we say public, that doesn’t mean that everybody can access all of the date it. It is only accessible to people operating the platform with clear data security protocols and people who want to be part of the platform.

RBE: And that was my question: What was your experience with the pilot?

JB: Well, we've been working on the pilot for more than two years and if you take a big company like ours, we have investments in many locations in many countries with different types of assets and real estate, so the platform has to be able to manage complexity – but also to remove complexity when it comes to operating and collecting the right data. It was painful when we started the process because everybody was learning, but now we have a good understanding of what the operator can do, what we can expect and what we can get out of it. We have reached some milestones, but the opportunity of the platform is still enormous and we have not even really started. And this is the tricky part which nobody really wants to hear: In the end, the digital platform will require fewer people to operate the asset. We're not developing platforms for the sake of it. We’re developing them because we want to be more efficient and to cut costs. Digital platforms usually kill the middlemen and some elements in the structure will simply be removed – and that could also mean part of the traditional work-share patterns. So you can either argue that you don’t want to do it, or you can be open and face the future and make the best of it, because it’s going to happen anyway. We’re trying to be in a position where we have the steering wheel in our hands rather than sitting in the trunk in 10 years’ time.

RBE: From what I’ve read this is very much linked to the ESG objectives so with the platform can easily steer the ESG performance of the building itself and probably the overall portfolio. As the Head of Sustainability for Commerz Real do you believe that ESG is enough? And do you think companies should do more? Do you think it’s sufficient or should the policy be stricter?

JB: The European Green Deal forced people to think about their ESG strategy and if you look into from a wider perspective you will see there is conflict as to whether that is a good thing or not. In the US, there are already some laws in place or being deployed to the market where people first have to confirm that something is commercially viable before going for ESG compliance. If you look at the UK right now, they’re trying to backpedal on some the elements they created years ago and even in Germany we’re talking about overturning some of the laws, like energy efficiency, to push things a bit further into the future. And well the answer is yes, you can do it, but still the sun will be hotter, the rain will be harder, and the winds might be tornado-like – and it’s really hard for people to understand what’s happening over a 20- or 40-year span. People don’t feel great when they a polar bear jumping from one little lump of sea ice to another, but they will have forgotten the next day because it doesn’t impact them personally. It has to affect your personal life. One day, the majority of people will understand that climate change is taking away the resources we depend on for life, but you cannot really feel it today. You can imagine that’s going to happen, but it doesn’t affect you as much as it may in ten years’ time. The push must always come from the people, so we have had a period where the regulator has issued some very restrictive rules. Either you are ESG compliant or not, and what the market always forgets is that you don’t have to opt into compliance – you can still operate without being ESG compliant. But you have to ask yourself whether the market is going to accept that and if they are going to invest in you in 10 or 15 years’ time. So there's always an opportunity to do more. I would actually just like to see people start. And you can start small steps - It’s not a sprint. We've just published a yellow book paper with some other companies on how to tackle the strategy, how you can identify the right steps, and get started. Hopefully this will help people to kick things off.

RBE: I just thought about ecosystems like Re-Building Europe. We meet, we communicate, we try to bring the right people together. Why is it still so hard to get the mass moving, to get people active and implementing? I feel like ESG and government policy is trying to enforce certain sustainability and other goals. There has been an effect, especially on the long term. You said you need to take the risk about what happens to a building in 2050: Is it still a business case or not? What other ways besides a policy of enforcement do you see to get the mass moving.

JB: What really matters is a fact-driven and also a commercial perspective. People are clever. You can try to force people to do something, but they will not necessarily do it. If you go to a car dealer and it just doesn’t make economic sense to buy an electric vehicle when conventional cars are still cheaper, why would they do it. People don’t think about what will happen in 10 or 15 years, that there may be a punitive tax that will mean you cannot sell it anymore. But when buying, people don’t consider that. So the point is to make it commercially effective and I make this point all the time: Whatever we do , it has to be commercially effective. And it will – we have just seen that start of carbon emission taxes scaling up.  

The second part is to appeal to emotions. People have to buy it. You have to tell a story right and if you’re not able to, people will not buy into you or the idea you are selling. And as I said at the beginning of the discussion, I strongly believe that investors should remember that they can push things in the right direction. Institutional money can move things in the right direction because you can steer where the money flows. And the same goes for retail funds. People can support retail funds because they do the right thing. They have a choice. It’s like going to the supermarket. You can choose whether you buy locally produced organic or from somewhere in the southern hemisphere where the forest has been burned and the food has been transported for thousands of miles across the sea. People have the choice and in order to get them to make to make the right decision, you have to appeal to their emotions.

RBE: It’s the combination that makes it successful and convincing.

JBE: It is important that CR and RCS are trying to educate people and to give direction, but also to be transparent and non-political in some areas. I’m an engineer so I’m very pragmatic. I try to understand what’s happening and I think that’s also one of the things these organisations have to deliver – to make clear what’s happening, to make information accessible, and also give a positive outlook on the future.

RBE: That brings me to another question looking on a global scale. London is walking back from sustainability goals, America is struggling. Which countries are you looking at? Which countries are future-proof? Are there any leading countries within Europe but also in a global context? Or which countries in your opinion that are lagging behind the most?

JB: That’s not easy to answer because how can you really judge a country. I think everybody has to look at their own country.

RBE: Let’s make it easier: Which countries inspire you?

JB: As I mentioned it's very hard to judge and even so we have that discussions around US they have that big tax reduction act, that just scales investments rapidly and much faster than in other countries. But look around the world. Toyota is currently developing “The Woven City” with numerous of skill-sets working on what a future city may look like. Singapore is developing a plan to be even cleaner than they are today. If I am not mistaken, Jakarta is moving their capital city from one end to the other because it’s going to be flooded in a couple of years. If you look at the US, there are some great companies there with some very smart digital solutions. They are very fast at digitization, faster than we are. But look at Germany, look at your network, talk to universities and with people who are working on products. Give them a shot. Try to understand what they want to achieve and how you can be involved.  Germany is still one of the greatest companies if it comes down on new ideas and research – we are really good in this field. There’s so much opportunity out there and I just would ask people to keep their eyes open and if they see something good just adapt it. You don’t have to reinvent the wheel all the time. Don’t necessarily copy one to one, but just try to copy what they want to achieve.

RBE: London managed that as well. So we’re coming to my last question which is a very open question just so we can also get even more inspired by you. If you had one big wish to the construction industry to the Re-Building Europe initiative as an ecosystem for future developments, what would it be?

JB: Our sector should think in ecosystems and lifecycles and not just from start to finish. So not only revenue stream and when I’m going to sell the building, but also beyond. Because if you look at the processes around the properties, they’re very fragmented and especially in the commercial sector. You buy a building during or after construction and you sell it and someone else buys it. That’s a lot of fragmentation which is not likely to be the case for corporates who build their own properties to keep. Germany also has some great buildings because corporates have a vision and they want to keep their properties in the longer term. So in this context, that would be my biggest wish: To think long term rather than short term.

RBE: Amazing! Thank you so much for your time and great insights.