Weekend Interview: Urban Partners’ Claus Mathisen On How To Help Cities Solve Humanity’s Problems
This series goes deep with some of the most compelling figures in commercial real estate: the deal-makers, the game-changers, the city-shapers and the larger-than-life personalities that keep CRE interesting.
For Urban Partners CEO Claus Mathisen, the solution to humanity’s key challenges will be found in cities. But cities have their own problems that need solving first.
The Copenhagen, Denmark-based investor has grown from humble beginnings as a small fund manager targeting the Nordics to become one of Europe’s most successful investment managers. Urban Partners has €19B of assets under management across the Nordic region, Germany and Poland, and earlier this year it raised €3.65B ($3.95B, £3.12B) for its fifth value-add fund, even as real estate fundraising generally fell off a cliff.
It has pulled this off by putting sustainability at the centre of its strategy, getting ahead of the curve when it comes to the increased focus from big investors and governments on cutting real estate’s carbon emissions. At New York Climate Week in September, for the second year in a row, the company will host an industrywide conference, gathering investors with $500B in unlisted real estate assets under management under a Leaders of the Urban Future banner.
In the last few years, Urban Partners has increasingly focused on large-scale, mixed-use urban developments and the problems facing cities. That is why it rebranded from NREP to Urban Partners in May 2023, bringing together four different platforms focusing on value-add real estate, real estate lending, venture capital tech investing and private equity corporate investing, all with a common purpose.
Mathisen told Bisnow why the company wants to be a best friend to city mayors, how it raised a big new fund during a downturn, how he thinks the highly levered Swedish market will play out, why sustainability certifications are a bit of a waste of time, and whether the current backlash against environmental, social and corporate governance initiatives is a short-term reaction or something that could take deeper root.
Bisnow: NREP was a highly successful fund manager focusing on value-add deals. What was behind the evolution into Urban Partners, and what is the company’s philosophy?
Mathisen: So a city is made out of buildings, but no building stands on its own two feet — it does not have any intrinsic value, it only has value for the tenant and in the context in which it sits. A lot of the value comes from the proximity to infrastructure or the ability to reduce your energy consumption for your building or to be able to create value for your tenants. So the understanding of what an urban ecosystem looks like became a way for us to look at our investments on the real estate side.
And once we saw that and combined it with the need for our buildings to become more sustainable, it became quite clear that cities will basically solve all the problems for humanity. We've decided as people to live in cities, we spend all our time in cities, all materials are consumed here, our transactions are made here. And the cities of the future need to become more sustainable. They need to become more healthy, they need to become more affordable, they need to become more safe. Mayors want to do that, and somebody has to help them. The solutions are there, but they don't exist at scale, and so somebody has to further the creation, the curation, if you will, of those solutions at scale.
That's where our constructive capital, our urban partner mentality comes in. We want to be the partner to the cities. Internally, we say we want to be the mayor's best friend. We want to be the ones who understand what the cities need, aligned capital that is knowledgeable, to create those solutions that the mayor needs.
Bisnow: What was the thinking behind combining different strategies like value-add investment, lending, VC investment and private equity into one platform?
Mathisen: They share the same vision, and the vision is the cities will solve our problems and cities need to become healthy, sustainable, equitable. And so our real estate arm is infused with understanding from the technology arm as to where our efficiency gains are, the developments happening in building materials. And if we only did real estate, without this broad chain that we share, then there would be no cure.
So that's at the philosophical level. And then at the practical level, when we do a real estate investment and we want to look at what are the most sustainable energy systems for those building types, our technology team scours the world globally for sustainable urban energy systems. They don’t have to do a deal together, but there's an information sharing, and that can turn into deals. Or we might miss out on a deal on the equity side and do that deal on the credit side instead.
Bisnow: What are the key challenges cities are facing, and how are you trying to address those at Urban Partners?
Mathisen: Affordable housing, if you take the mayors collectively, that is the biggest one for them to solve. And it's a combination of construction cost, of sustainable land intensity use, of mobility infrastructure that can serve a wider area. So it's a pretty big topic. And it's been solved in many different ways across the regions.
And then I think most mayors will say that they need to solve sustainability. But sustainability in an urban context is actually quite complex, and it's quite multivariate. And most of it is solved with energy and urban mobility infrastructure. Those two things, being able to invest into the urban infrastructure that they need to build cities and usages, is a continual capex problem for most mayors across the world.
Bisnow: What is your firm doing to solve the affordable housing issue in the cities where you are active?
Mathisen: So affordable housing comes from three things: It comes from what you pay for the land, how much does it cost to build and how intensely you utilise that land or the building. So how much space can you actually live on? Both from a sustainability and affordability metric, the easiest thing to do is to reduce the amount of footprint that each person takes up. As an example, in Copenhagen, average apartments, if you built 100 apartments, the average size had to be 91 square metres (980 SF). That just puts affordability out of reach for the average person who lives in Copenhagen because that equates to a €500K apartment, so that makes no sense.
We spent a huge amount of time trying to bring down the average unit size that you had to build in the Copenhagen building code. Secondly, reduce the cost of building it. So automation, modular construction and certified building materials that are produced at scale, which is what our private equity business is intending to drive. The optimisation of sustainable building materials and building codes that allow you to do that, in most countries' build code, is not coordinated to create efficient, sustainable buildings.
Thirdly, more intense use. So conjoined use, having more facilities used by more people at the same time. Parking being the most obvious one — it costs a lot of money. Most people don't want to have a car if they live in the inner city, so reducing the parking norms. A lot of this is about code and about demonstrating how you can actually use less space.
And then land costs. There's really nothing we can do on land cost, except on zoning. And again, intensity can be brought up and down if you are able to meet some of the municipal needs within that zoning.
Bisnow: When you were raising your latest value-add fund, what were the most common questions investors were asking?
Mathisen: There was probing on the availability of financing, which has clearly gone down, and we've underwritten accordingly so that we have less leverage in our returns. And so we also see the returns being more risk-adjusted now than they were three years ago.
And the biggest question, specifically on Sweden: Is the current situation one that's, if you will, fundamental, or is it a capital markets-driven one? And what do you see this evolving into? We invest into living, into logistics, into sustainable flexible offices. And so the underlying industrial demand drivers are still intact for those. So we invest less opportunistically and more fundamentally into demographically underpinned drivers of demand.
Bisnow: And how do you think the current volatility in the Swedish market will play out?
Mathisen: I think it's going to be in sort-out mode for a couple of years. It will sort out its refinancing needs. The banks are quite well-capitalised. I think you'll see some examples, SBB being kind of the poster child, for what happens to overlevered assets that actually cannot carry that type of leverage and does not have the portfolio quality that you need to sustain through a crisis like this. And so they will not be in existence, I suspect. The other companies have crossed ownership and are relatively well-supported by pension funds and banks locally. They are going to absorb some equity hits, but they're going to ride it through.
So again, fundamental industrial demand in Sweden is sound. Household debt is high. But it's also an economy that's been able to absorb that. It's an open, industrial, well-functioning economy. You see house prices on the retail side going up again, you see institutional trades starting to pick up again. So people have absorbed the initial interest rate spike, and also everybody knows it will come down again. The current interest rate environment is not the one that people underwrite for the next 10 years.
Bisnow: In the U.S., in particular, and more recently in the UK, there has been a growing backlash against ESG. Is that a short-term phenomenon or something that presages a change in direction compared to the last few years?
Mathisen: I think the short answer is that a topic like ESG — and sustainability and CO2 — when it starts to hit industrial interests, obviously that will create some swings. And the pendulum was swinging back and forth. I do think it's a temporary one where it's been latched onto politically as a relevant point.
On a practical note, day to day, most of the tenants, the banks, the politicians we speak to are undeterred in terms of the insistence that this is a topic that needs to be addressed. We cannot rely on fossil fuels for the next generations. So we have to, both for geopolitical reasons but also more importantly for sustainability reasons, reduce our reliance on that. So I would see CO2 being taken out of the entire value chain, irrespective of political backlash currently.
Bisnow: A focus on sustainability has been central to the success of Urban Partners. What advice would you give companies who are just starting out on the journey to make their portfolios more sustainable?
Mathisen: First and foremost, if you start out on it now, a lot of the path has already been shortened, a lot of the solutions actually exist. And by far the easiest one is on the energy side, so start there. It’s procurement and self-generation of energy. That's relatively easy, straightforward, simple stuff to do.
When we started out, we focused initially on certifications, and then dropped them, quite quickly, because they're just expensive and they did not have any meaningful impact on what you actually end up doing. So I'd be wary of taking a certification and then just saying, “Well, that's it.” Because then it has no fundamental economic value. You're just adding a cost layer to your asset. You can get your LEED Gold without doing anything that drives the sustainability profile of your assets.
Bisnow: When you’re not at work, what does free time look like?
Mathisen: I fundamentally believe you cannot have impact unless you have balance as well. So I use my weekends to balance, and I balance with nature and my family. I have four kids. They remind me every day of what it is that I'm trying to achieve, how it actually impacts them. So I spend most Saturday mornings sitting in the ice-cold ice hockey rink with my 9-year-old. That's not a very widely practiced Danish sport, so it's a very hardcore bunch.
And then I like to cook. So I spent a lot of time shopping for groceries. Copenhagen is fantastic for food. It's one of the things that this city can actually do, is to procure great, great materials for making all kinds of dinners. I serve a lot of fish to my family. My signature dish? Sole with hollandaise sauce.
