Gingko Advisor's Bruno Farber and Laura Nolier explain how sustainable urban regeneration has a significant social, environmental and economic impact while delivering market returns.
Environmental Finance (EF): How important an issue is sustainable urban regeneration?
Bruno Farber (BF): Urban regeneration is little-understood issue, and there are very few investment funds active in this space. Urban regeneration is at the crossroads of important economic, social and environmental issues.
From an environmental perspective, there are two major issues at stake. The first is urban sprawl or 'land take', greenfield land – whether natural, forestry or agricultural – eaten away by urbanisation, not just the buildings themselves, but all the necessary infrastructure, roads and parking. Urban sprawl has eaten away large parts of continental Europe. The only efficient answer to curb urban sprawl is to rebuild the city upon itself. The second environmental issue we address is pollution. We acquire formerly industrial land plots that are contaminated. Those polluted land plots often sit next to housing, schools, or commercial activity, and there can be public health issues. Many traditional developers shy away from such complex remediation projects, as they are capital intensive and require very specific technical knowledge and experience.
From a social standpoint, we observe tremendous housing shortages in most European capitals and large cities. Part of the problem is the lack of developable land on which to build new housing. One important way to free up developable land is to reconvert former industrial land plots that are well-located, close to public transport and infrastructure. One of our key goals is to redevelop urban brownfields into vibrant neighbourhoods with a significant residential component to address insufficient housing stock.
Finally, from an economic point of view, compact cities where people do not need a long commute to work or school are virtuous. Suburban development has created a hidden economic cost in terms of energy use, traffic congestion and community cohesiveness. Rebuilding the city upon itself and intelligently designing it has very positive economic implications.
EF: Why should investors care about urban regeneration?
BF: Urban regeneration provides investors with exposure to an interesting real asset class. We buy land and reconvert it, gradually increasing its value. As a real asset, it also provides some protection against inflation. Another interesting aspect of our offering is that it provides good geographical diversification and political risk mitigation. Finally, investing in urban regeneration offers an attractive risk-return profile over an eight-to-12 years time horizon.
Laura Nolier (LN): Investors can showcase that they positively impact environmental, social and economic challenges, and this is a very large untapped market. There are many brownfield sites are very much in need of depolluting and redevelopment as well as obsolete vacant buildings, particularly since the Covid-19 pandemic, in need of reconversion. Research with our partner Systemiq shows that urban regeneration can help us meet the demand for new housing, offices and logistics over the next 10-to-15 years.
EF: What does successful regeneration look like?
BF: The outcome we want to achieve is to create new places to live, work or study and out of disused assets: contaminated land plots. We want to turn obsolescence into value, to generate financial returns for our investors, while simultaneously achieving our impact objectives.
Our non-financial impact objectives are based on key performance indicators (KPIs) that focus for instance on depollution, how much green land we save by limiting urban sprawl or how much biodiversity we create. We also measure our impact for energy efficiency, circular economy and climate resilience.
LN: One thing that is very important for the success of a project is trying to build a consensus with the various stakeholders involved in a project. You cannot redevelop land without approval from local authorities and local communities. That is a very strong component of our day-to-day job.
EF: What role can private markets play in driving more investment into this area?
BF: Our activity is capital intensive: buying land plots, urban planning, remediation and redevelopment. A typical capital commitment in a project will range between $30-50 million. The public sector doesn't always have the means to tackle such large and complex projects, and many developers do not always have the necessary capital. So, the private markets have a very important role to play. Urban Regeneration is well-suited to patient capital, typically from institutional investors like pension funds or insurance companies with a strong ESG or impact-focused view.
EF: How have investors responded to Ginkgo's approach and strategy?
BF: We have been active for the past 15 years. We now have a team of 35 experts with multidisciplinary expertise in private equity, real estate, depollution and impact. We have a good track record and very significant experience in the urban regeneration space. Our funds are classified as Article 9 under the EU's Sustainable Finance Disclosure Regulation (SFDR) in an asset class where there are few.
