Weekend Interview: Renovate, Retrofit, Refurbish — Deb Cloutier On Sustainability's Evolution In CRE
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 who keep CRE interesting.
RE Tech Advisors founder and President Deb Cloutier has seen the good, the bad and the decarbonization when it comes to sustainability in real estate. She has 31 years of experience in the ever-changing ESG sector and has helped shape the federal government’s response to going green.
In her first role out of college, Cloutier worked on the greening of The White House under the Clinton administration. She also helped to develop a system that provides data on a space's energy consumption and how it can be improved, which evolved into the Environmental Protection Agency’s Energy Star program.
Today, Cloutier works closely with Blackstone to make the real estate industry more sustainable. The private equity giant bought RE Tech Advisors in 2020 to serve as the fulfillment platform for Blackstone’s emissions and cost reduction program.
Cloutier is also the chief sustainability officer and leads the acquisitions strategy for Legence, a Blackstone-owned environmental, social and corporate governance real estate consultancy that bills itself as an energy transition accelerator and is involved in greening 1.5B SF. Legence is rapidly acquiring firms to grow and scale its offerings to clients, a strategy Cloutier said it plans to continue next year.
Cloutier spoke to Bisnow about the changes she has seen sustainability take in real estate, where we are now and the factors that will impact CRE moving forward.
This interview has been edited for length and clarity.
Bisnow: So, I saw that your first job was with the American Institute of Architects, and you were on the committee for the environment. How did that come to be?
Cloutier: I had just graduated [with an] undergraduate degree in biology with a concentration in environmental studies. And it was really hard to find a job in the early ‘90s. So kind of by serendipity, I would say, I ended up at the AIA working on their committee on the environment, which was the first committee for AIA in this space.
We got to work on the first evergreening of the White House under the first Clinton administration. And that was super cool because I was just out of school and exposed to all of these remarkable architects and urban planners and leaders in the space that were bringing forward these ideas of integrated design concepts — the really early days around those concepts of health and well-being and operating expenses and like, “Well, if we do this, what implication does it have for the users and the people maintaining the spaces?”
Bisnow: You were integral in coming up with the EPA Energy Star program. And I wanted to know, how did that happen?
Cloutier: It's one of my favorite aspects of my career. And actually, it's interesting because the first time I started supporting the EPA was the original, voluntary public-private partnership program. It was in 1992, which was the start of the predecessor to Energy Star. It's called Green Lights. The program was the first time in EPA history that they were taking a voluntary approach. They were established to be a regulatory agency. But in 1992, they launched a program to use something like a memorandum of understanding with organizations to reduce their energy consumption by installing more energy-efficient lights, which sounds kind of funny today, given how broad this industry has grown.
That morphed into the Energy Star program, right around the mid-1990s. We launched a tool called Portfolio Manager, and it was the first time that organizations could measure the whole building’s energy consumption and have a relative comparison between two buildings.
So now you could compare your building's performance to similar buildings or to yourself over time. And you could set the concept of establishing a goal to reduce consumption and then measure your progress towards that over time.
Bisnow: How has the attitude and the atmosphere around sustainability changed?
Cloutier: In the early days, it was a focus on energy efficiency, utility cost reduction, really around that operating cost containment, and a lot of the value propositions and the technologies that were coming to market. We're enabling building owners and operators to do things with an increased productivity and efficiency mindset.
We've seen that really morphed over the years to be expanded to include other value propositions, like, “Hey, if we have daylight and better indoor air quality, our kids can have a more productive learning environment, or in hospitals, we have results that show that individuals heal and recover better and faster, and the fact that we spend the vast majority of our time indoors in buildings, it really does affect our lives.”
Some of the awareness and the drivers that have changed this industry over time have just continued to accelerate with the effects of climate change. We really are seeing today many of the implications of the frequency and severity of weather-related events occurring.
We're down to multibillion-dollar property casualty losses associated with weather-related events every 18 days. And that's just fundamentally very different from where we were in the ‘90s.
Bisnow: What were some of the key moments of change that you recall?
Cloutier: Hurricanes, like Katrina, followed immediately by superstorms [like] Superstorm Sandy in New York, really were inflection points for the industry as a whole.
More recently, the passage of the Inflation Reduction Act, which is the single largest climate bill directed to accelerate the transition to a low-carbon economy [at] $380B.
We've had a number of influential owners and investors make commitments to net-zero by 2050 for their assets, or [to] really raise the importance of this collection of research and information around health and well-being, the ability to create incremental asset value associated with improving properties, and trying to assess climate risk and manage it as a real risk — similar to other business risks.
I think that has been a little bit slower. But you definitely feel it's quite different in the industry today. Capital providers are demanding not only lip service and a check-the-box approach to sustainability, but now they want evidence. They want commitment to hard targets and goals. And they want to be told about progress related to that. And that, I think, is in large part also driven by the passage of a lot of regulation and disclosure mandates that have just kind of been a slow and steady march here in the U.S. and abroad over the last five years.
Bisnow: What inspired you to start your first business, Real Estate Technology Group, in 1999?
Cloutier: Throughout my career, I've been fascinated with this idea of the intersection of two or more things. And I've found that it's at that nexus of ideas or synergies of trends where the greatest opportunities are made. And so I first started Real Estate Technologies Group, and my second consulting firm, JDM Associates, and RE Tech Advisors under the same premise.
I saw a need within commercial real estate for owners and investors to improve the financial and environmental performance of their assets by embedding the principles of sustainability and resiliency into standard business practice.
Bisnow: So how has that helped you in your role today?
Cloutier: My prior experiences have helped sort of hone in, train, this way of thinking of these intersections. So if you think about today, we have the intersection of climate change, frequency of [natural disaster] events occurring and the fact that buildings represent roughly 40% of the emissions globally, and there's this growing demand for energy efficiency and cost-efficient products. And then you layer that with the building stock aging — 80% of the building stock for 2050 already exists today. Decarbonizing the operating emissions associated with the existing building stock is requiring this transition to a low-carbon economy.
The last 30 years of my work in this space has been focused on trying to solve those climate-related issues or problems. At Legence, we have this unique opportunity to bring these pieces together at each of the inflection points of a building's life cycle. We have opportunities to make improvements, whether it's the design, the materials, the construction, operating, as well as renovations and refurbishments.
If an average life of a building is 30-plus years, typically, it will undergo maybe three or four cycles of renovation and retrofits and refurbishment. Each one of those inflection points provides this wonderful opportunity to improve the financial and environmental performance, as well as the health and well-being for the occupants. That's what I'm most excited about today. That's why Legence exists. Our purpose is to accelerate this transition.
Bisnow: I want to go back to Legence and I wanted to know what its relationship with Blackstone is.
Cloutier: Blackstone is our private equity sponsor. Legence was formed out of a series of acquisitions; RE Tech Advisors and an organization called Thermal Holdings were first brought together in December 2020. The investment thesis there is that if we take the strategic advisory consulting side of the work, the strategy and the design side, and we marry it with the boots-on-the-ground solutions, we would be able to really integrate and offer a series of solutions that for a given client can be end-to-end.
But it also can be stackable solutions that meet their needs and where they are in that same building life cycle, but also where an organization is on their decarbonization journey. So Blackstone has been a phenomenal supporter for Legence.
Bisnow: Legence acquired four companies this year to expand technical, consulting, design and construction offerings. As you're moving forward to next year, are you thinking about going further with the M&A route to grow and scale?
Cloutier: In total, since we formed Legence, over the last three years, we've done over 13 acquisitions. And I think that's part of our secret sauce if you will.
Legence is definitely continuing on an aggressive growth path because we need more people in the boat to help us find these innovative solutions and figure out how we're going to tackle this global crisis of transitioning to a low-carbon economy. It has literally never been done before.
Bisnow: In September, Legence acquired a decarbonization company in SoCal. How will Gov. Gavin Newsom's sustainability bill, requiring companies to disclose all greenhouse gas emissions, affect Legence's operations?
Cloutier: One of our strongest geographic presences is all throughout California, so we have been monitoring the assembly bill quite closely.
These bills are trying to push organizations to assess and evaluate the material exposure that they have to climate risk. And so they're going to be required to account for their greenhouse gas emissions and business-related risks.
For Legence, an organization that helps other companies assess and evaluate and identify those risks, and then how to measure greenhouse gas inventories and develop strategies to reduce those emissions in a productive and profitable way, I think we see it as an opportunity more than a hindrance. We're a large company that operates there, and we will obviously comply with those regulations, just like all other organizations will.
Bisnow: What is your bold prediction for next year?
Cloutier: The commercial real estate industry is going to be fundamentally changed by machine learning. Right now, there are so many new opportunities being explored around the art of the possible relative to the training of large language models and using AI for predictive insights and analytics.
From leasing and marketing space to learning and optimizing operational performance with building systems, to even predictive models for valuation and enhanced due diligence, I think our industry as we know it today is going to be rapidly and deeply changed. And organizations that aren't actively integrating AI into their strategic initiatives will be disrupted by those that do. And I believe that ultimately, they will be overtaken by the speed, productivity and agility of these new tools and solutions.
Bisnow: Because this is the weekend interview, I think it's pertinent to ask, what is your favorite weekend activity?
Cloutier: My husband and I have been together for over 30 years, and we have a remarkable daughter, who's now a senior in high school. And we all love the water. So the weekends for us, you will usually find us on the pool deck, volunteering and sharing at swim meets, or sailing or kayaking on the Chesapeake Bay, or just sitting by the water's edge watching the sunrise or the sunset. Spending time with my family recharges me. It allows us to connect with one another. And this grounds me and reminds me of what is most important in my life.
