Investing in Regenerative Agriculture and Food
Investing in Regenerative Agriculture and Food podcast features the pioneers in the regenerative food and agriculture space to learn more on how to put our money to work to regenerate soil, people, local communities and ecosystems while making an appropriate and fair return. Hosted by Koen van Seijen.
Investing in Regenerative Agriculture and Food
383 Rasmus Nørgaard - From bricks to soil: rethinking real estate from the ground up
Straight from Copenhagen, a conversation with Rasmus Nørgaard, co-founder of Urban Partners, Home.Earth and Nordhus with over two decades of experience in real estate, pushing the boundaries of sustainability within conventional systems. With Rasmus we dive deep into the world of real estate. The built environment is one of the three major sectors that needs a complete systems change, alongside with agrifood and energy.
What happens when you reimagine real estate development from first principles? What can the regenerative agriculture and food sector learn from one of the pioneers of sustainable real estate? Rasmus shares the revolutionary approach behind Home.Earth, a company proving that sustainable, affordable housing can also be profitable. He is building a much more holistic for-profit company that is reinventing real estate from the ground up. Yes, we talk a lot about buildings and homes, but there are so many overlaps with agriculture and food. Let’s face it: soil is a real asset in investment terms.
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In Investing in Regenerative Agriculture and Food podcast show we talk to the pioneers in the regenerative food and agriculture space to learn more on how to put our money to work to regenerate soil, people, local communities and ecosystems while making an appropriate and fair return. Hosted by Koen van Seijen.
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We all have a roof over our head and a bed to sleep in, if you're lucky and if you're unlucky, like most of us with homes are you spend a significant amount of your monthly budget on housing and this is only increasing the size of houses, the rents and mortgages, especially in highly sought after cities, which also means many people have less budget for high quality region food. This isn't sustainable from an economical and societal perspective, as the building sector is incredibly wasteful and uses huge amounts of fossil fuels. Today is a slightly different episode, where we dive deep into the world of real estate. No, not real assets, although they are assets, but buildings, homes, concrete, steel and hopefully, a lot of wood in the future. One of the three large sectors which needs a complete systems change is the built environment. Next, of course, agri-food and the energy system. So what can we in the regenerative agriculture food sector learn from one of the pioneers in real estate space, someone with over two decades of a very successful real estate experience, where he pushed the boundaries of sustainability in the conventional system and is now building a much more holistic there we say horizon three for-profit company reinventing real estate from the ground up, and he's convinced that it will show that these kind of long-term real estate companies will prove to be more profitable, also from a financial angle, than this short-termism. Yes, we talk a lot about buildings and homes, but there are so many overlaps with the agri-food system and, let's face it, soil is a real asset in investment terms and we ought to learn from the best in real estate to get more aligned money into the soil ASAP. It's all about aligned incentives and the right structures to build. To last, this is the Investing in Regenerative Agriculture and Food podcast, where we learn more on how to put money to work to regenerate soil, people, local communities and ecosystems while making an appropriate and fair return. Local communities and ecosystems while making an appropriate and fair return.
Speaker 1:Welcome to another episode Today, a very special one. I've been saying this a lot the last month. So everything, not if we do. If everything is special, nothing is special, obviously. But this is a different one at least, where we're going to dive deep into the world of real estate with a friend of the show. We're actually in his podcast studio or in one of the buildings you developed, rasmus, where you're hosting us. So thank you first of all for that, and we're going to unpack how you're holistically so already a term that we use in Regen quite a bit as well are trying to disrupt or reinvent or rethink and redo. Most importantly because we do a lot of thinking, we're not so much doing in many sectors the real estate space, co-founder of Home Earth, where I would say, disrupting quite fundamentally what real estate development looks like and I'm very happy to bring your experience and your work and, of course, your journey to the podcast and looking forward to dive deeper into that.
Speaker 1:Welcome. Thank you, koen. I'm glad to be here and we always start with a personal question and, of course, normally we say why soil and why are you interested in that? We can also actually tap into that because I'm curious what brings people to be interested in food and agriculture? But in this case, how come you're with Home Earth and we put all the links in the show notes, obviously how come you're deeply reinventing or deeply moved and triggered and into trying to figure out other ways and different ways and fundamentally more sustainable ways and responsible ways of doing real estate? What's that drive? You don't have to do that. You could be doing other, definitely easier things in life than trying to figure out. Okay, how do we build and maintain and live just much healthier? What's that?
Speaker 2:Yeah, it's also been a journey to get here. Originally, I have a background from finance and quite quickly realized that I wasn't going to work in traditional finance for the rest of my life and then, very randomly, actually got exposed to real estate roughly 25 years ago and was intrigued. And I think there's something very relatable around real estate. Everyone uses real estate, everyone understands real estate. Is that true or not? That's barely true. No, it's true. But everyone has an opinion about what is a good home, what is a nice office to spend time in, and so on and so forth. What is a good urban space to be in.
Speaker 1:Yeah, we all feel that I think I don't know if we can name it necessarily but everybody that walks into a home for them, because it's super context-specific feels like ooh. Or when you spend a month somewhere or two months, or. Or when you spend a month somewhere or two months or you live somewhere, this actually feels like home. Or when you work somewhere, like you said, or this feels really it's too loud, too distical, too warm, too, whatever.
Speaker 2:We all know intrinsically where we like to be, yeah, and also outside spaces in the city you like to hang out in and when that works for you. What's the vibe in that part of the city, etc. And beyond that, I think there's something very tangible, physical around it, which you also have in the agriculture space. That it's a physical asset which somehow intrigued me as well, and there's also the financial aspect. So, anyhow, I got intrigued by real estate.
Speaker 2:I'd never had any dreams of real estate and initially worked for one of the big financial groups in the Nordics in that space, but then, roughly 20 years ago, started was one of the founders of a company called Urban Partners. Today it's called Urban Partners. It started off with a different name and spent 15 years there, almost all of that time as the CIO, chief investment officer of that company, and it's been on a fantastic journey. Today it's 700 people and manages more than 20 billion of real estate across Northern Europe. So it's been on a long journey and I would say we also. As you grow, mature the business and as you mature as a person, I think your awareness grows and you start realizing that what you do actually has significant impacts on a number of different dimensions and we started taking that more and more into Urban Partners. But at some point and there were various reasons I was part of the management team, but I think I reached my managerial ceiling. I think I'm more an entrepreneur than a good manager.
Speaker 1:Which happens quite often. Right, yeah, am I enjoying, managing or starting?
Speaker 2:Exactly, and I think I enjoy starting more and I've come to say that I prefer playing football than coaching football, so I like to be on the field myself and recognizing that in a growing organization. So there was a need for change there. But there was also a sense that Urban Partners is structured on the same financial structures that you see otherwise, so a private equity format where you manage funds for up to 10 years, but that means that your investments are typically five to seven years, et cetera, and it's built on, call it, certain premises that there are just there are limitations what you can do in such a structure.
Speaker 1:And very recognizable, I think, from the people that are managing, let's say, real assets where it comes from the real estate sector, of course, in agriculture, and the limitations of the 10-year structure and the fee structures underneath that, and while you're managing an asset that has a much longer life, hopefully, theoretically, hopefully, you build it well enough, like there's that tension which is exactly the same as an ag.
Speaker 2:Completely, and I would say the 10-year structure often will mean that you'll invest over a two to three-year period, meaning that your average holding period will only be five to seven years. I would claim so it is 10 years, but you won't have many investments for 10 years almost none in a normal life cycle. And I think where we in Urban Partners really started very early on decarbonization in the built environment, et cetera, and have been rigorously working on that, and Urban Partners still is environment, et cetera and have been rigorously working on that, and Urban Partners still is then the social dimensions of the ever-present housing crisis in all the big cities and so on. I don't think there are many private actors that have really come up with solutions for that. It's also not easy, but I was motivated to try and see. Can we build a platform where we can take more of a holistic approach, which is one of the descriptions you used in your intro? And let's say, we managed to decarbonize but the housing crisis has exploded even more. Is that a good outcome? Or let's say, we've solved affordability but we're using concrete everywhere and we're nowhere near kind of the planetary boundaries and how we develop real estate.
Speaker 2:So I wanted to get to a place where we could do this holistically. And why do that? I think, as an entrepreneur, I love to solve problems. This is trying to address some of the biggest challenges that I think are out there and also some of the causes of what we see in the world going on A social contract that's being broken, that leads to populism, et cetera, et cetera and I think the housing market is actually a real piece of that. For everyone, your housing cost, almost for everyone, is the biggest part of your budget. So if you don't, if you feel pressured on that, I think, then a lot of things stems from that. And I also think, for example, in relation to the space you're in, housing is a fixed cost. Food is a variable cost. So in that sense, you say, the more housing costs go up, the more squeezed people are in terms of what they can pay for food.
Speaker 2:So there's a relationship there and where, in principle, I think housing should cost less and food should cost more, and there's also more profit being made in the real estate space than in the agriculture space. So there's something there, but there's something about what comes first. I think that dictates a little bit that relationship, something there, but there's something about what comes first.
Speaker 1:I think that dictates a little bit that relationship. Yeah, and there's so many similarities. But in a budget, yeah, if food you can easily switch, like the switching costs are very low, you can definitely decrease your food budget going out and also just the quality and price or picking other supermarkets or other sources. Switching houses is, for better or not better reasons, not so easy for many and obviously you're pretty stuck there and prices have gone up. If you live in bigger cities, let's say like it's a crisis everywhere, like affordability, access to houses for first time buyers or renters, certain markets, of course, with tourism, have been completely distorted, but almost any big city, which is interesting as well, because it's not that long ago and I'm sounding very old now that the inner cities of cities were not interesting at all, like many European cities at least, where people moved out and moved away and you could never imagine see here in Copenhagen or in Amsterdam or Rotterdam, that people with children would choose to be in cities.
Speaker 1:I don't think there was a concept and then it started to shift, maybe 20 years ago, whenever, whichever where you are, and that led to such a pressure in and around these large cities that just kept going bigger and more people, for good reasons, because of the intersection of work and private life, art and culture and all of those things and food and hospitality that you don't find or is more difficult to find elsewhere. Did you look around when that notion came more and more okay in the current structure I have, however, progressive Urban Partners is with these current limitations on lifetime, on investment structures, et cetera. And then did you start looking around? Okay, who is trying to figure this out in the private market? Of course you have social housing, but in the private market, who is doing things in Barcelona or in Melbourne? Or did you go on a tour and say, okay, I can't be the only one that starts to ask questions about how do we house ourselves and should it cost less? But how does it actually make sense and, of course, still be comfortable?
Speaker 2:I didn't go on a tour but I would say I, for example, always enjoyed going to the Netherlands. I think there's a lot of creative urban development, also in relation to sustainability et cetera, in the Netherlands and take good inspiration from that and I have always been curious also throughout the years with urban partners. Obviously we've been inspired and some of that has informed some of the work we have done et cetera. But I don't think I'd ever come across a company that usually in that way tried to take that holistic approach. You will see different efforts that have, so all the elements are probably there in different contexts and so on, but trying to bring it all together. I haven't seen much of that.
Speaker 1:Which is also similar, partly similar. Again, we're going to make a lot of references to the ag or the agriculture space that there are many until not so long ago. Of course there's some pioneers, but many specific interventions or things individual farmers have done. And then now suddenly we see this fully multi-stacked enterprises with tourism involved, with a lot of hospitality, with direct sales. There's now a whole movement of saying actually we need to, and also with different land ownership structures underneath, like we need all of it.
Speaker 1:It's not that you can innovate two or three things and then expect the whole picture of 20 things to change. That's also a strategy. That's the more incremental one. But we also need, as a separate track, like really start. If you, from the ground up, would redesign this, how would it look like? I think that's what you did or are doing. Just the first tenants went in two weeks ago, three weeks ago. So it's definitely a lot of work I've done beforehand. Of course, I've gone into that moment, but that's, I think, the approach you took with Home Earth. What if you start from scratch, Like what are principles, what are boundaries we don't want to cross, and can we make it from an investment point of view, from a finance point of view. Can we make it work in a still profitable private setting?
Speaker 2:Yeah. No, that's comfortable private setting. Yeah, that's true, but I think there are different components to it. I think we have a big theme around how we design and build. I think in many ways, how we develop real estate is dysfunctional. Almost all projects are delayed and over budget, etc. We're sitting in Nordhus. You were supposed to be here last year but we were delayed and we were also over budget.
Speaker 1:Which is interesting for somebody with so much experience and designing his or her own together with your partner.
Speaker 2:But it's almost part of the system, it's almost part of the system and people accept it, but that's something we're, I would say, taking the long road on in Home Earth and trying to let's unpack that a bit what's the, how do you the building piece?
Speaker 1:And then we get to other structures. What needed or needs to happen there to bring it within budget and within time and like other industries are organized, I think.
Speaker 2:Yeah, I'm just wondering if there's a short. I don't think there's a short answer to that one. No, because I want to get into the details because I'm curious.
Speaker 1:What is so different? Not just because that's what you said before. Even if we get to affordability and it's a shitty quality, then we still didn't solve it. A holistic approach also means potentially probably unfortunately reinventing how you actually build, and you have to start there because otherwise you still don't have an holistic approach. So first building is up, or it's almost like part of it is finished, people are living there. The rest is being finished over time. What is so revolutionary about it?
Speaker 2:Yeah, and I'm also wondering I don't think it's revolutionary, but incrementally better in a number of different ways. But maybe use automotive as a reference. So you could say a car company will have a team of designers spend significant time and significant effort and significant money on developing, for instance, a new platform. So they'll design a new platform and then they'll do a million or 10 million cars on that platform and hence it makes sense to really put a lot of quality and thought into that process. And then a car is a reasonably expensive asset, but still not compared to real estate. If you think of real estate, it's a highly costly asset, and yet once we design real estate, we start from scratch every time. So you ask an architect to design a building as if they'd never built anything before and with the lowest possible budget. So if you think about.
Speaker 1:Incentives are not aligned, to say the least.
Speaker 2:They're not aligned and even though it's, when I say, it's never been built before. Of course, if you do a residential project in Copenhagen or Amsterdam, there are probably other projects that look similar but they're not the same. And if you make variations and it's not just call it the color or something like that, which in a car you can, obviously you can change the leather on the seats and you can change the color of the car and you can maybe change the engine and so on. That's pretty much it, but otherwise it's the same. And here each building is unique. Even though they look similar, they're unique.
Speaker 2:And another way of thinking about this is that you design buildings from outside in. So first you have a site, you ask, go to your architect, they place a volume on the site, then you start putting in your functions and eventually you get, for instance, to the installations, to the installations, and that means that things that doesn't matter to the outside or to the usability or aesthetics of the building, like a ventilation shaft, is still redrawn every time. If we drew buildings from the inside out ie, you had a set of Lego bricks you hada created a really well-functioning ventilation shaft and you reused it every time and you had designed the best one two and three-bedroom apartment and you reused that stamp and then in the end you need to configure that on the site and put on call it the right aesthetics that fit that skin, the skin that fits that area and that locality. Then you start to get to something where you can industrialize it more. I would say, for me, the big issue with design and construction is that you have a very fragmented value chain from a developer to an architect, to probably a couple of engineers, to a contractor, to a whole suite of subcontractors, to the investor, to the caretaker, to the next investor, to the maintenance people and so on. All of them are different and it means information gets lost.
Speaker 2:So, again going back to automotive, you have a platform. They may work with different subcontractors, but they take responsibility for that value chain. They design the car, they send the specifications to the suppliers, they assemble the car, they do the sales, they do the after sales, they do the service, etc. And they will work with others in that process, but they control that value chain. That's not the case in real estate, so it's highly fragmented.
Speaker 2:A lot of the people involved in that value chain are involved for a couple of years, whereas you have a building that will be there for, hopefully, 100-plus years and you say the long-term needs of both the users and the owners of that building are not visible at the front end of that process. I hope it makes sense and so I think in my mind we need to integrate and to some extent industrialize that value chain and take responsibility across that value chain, and it's really hard for an architect or a contractor to do that. It needs to come from the long-term owner ultimately. So you could say for Home Earth, that's one of the reasons why we set it up as a, in principle, an evergreen company, because we want to be a long-term owner that are super present in the beginning of the design process, if that makes sense, because that's where a big chunk of the impact of the emissions of the comfort is in that design.
Speaker 1:Totally Not in. Or later, if I put red on the wall or with a comfy couch. No, if the building is not optimally designed, you're just never going to fix it with a color, correct? You're saying we don't spend nearly as much time and resources in that original, best two, three bedroom apartment that you can possibly, and then keep iterating and keep improving and figuring out okay, what's the platform here that really creates the most comfort for the least amount of resources and price? And instead of going the other way around and say, okay, what looks nice on this place and let's see what we can squeeze into it.
Speaker 1:Yes, and so ownership? I hear ownership is here a fundamental piece, which again, in ag and food obviously is as well. Who owns and also takes responsibility for that full process? So I'm imagining Home on the Earth does. It's, in principle, set up as an evergreen. That's very different from the current real estate development piece. So you're.
Speaker 1:And then, how does it work? You take that decision. Okay, we identified ownership and long-term is fundamental here. Otherwise, like we're only responsible for two years of the process. That's going to go wrong for sure, because the building should be there 50 plus. And then where do you go from there? Like what's the next? Because it's so different, like how you even raise capital to do that, because you're also saying in the car and the automotive we need significant capital upfront to spend time and energy and resources in designing, not just take whatever we've done and so on only to redesign probably the ventilation shaft and the four apartments and everything else in terms of flow to be there for 50 plus years because, yeah, we're going to own it for a bad time probably.
Speaker 2:Yeah, I know, and that's where it gets tricky. So ultimately we would say the objective of Home Earth is to create homes and operate homes that people can afford and the planet can sustain. That sounds pretty simple, but I think there, for instance, the design and construction piece becomes an enabler and a prerequisite. I think now we talked about more from a maybe user cost perspective how we design and construct, but I think it's also a prerequisite for doing it sustainably. We can't start all over every time. We need to iterate and continuously improve etc. And we need to make clear what the objectives are at the beginning of the design process.
Speaker 2:The first project that you referred to we've done in Home Earth has the lowest ever carbon footprint of a residential apartment building in Denmark and we used only solutions that are out there. But we made it clear that at the beginning of the design process that this was a key objective for us. And now I use some numbers that may not make sense, but you measure carbon footprint on buildings in terms of kilos of CO2 per square meter per year. We set a target of six. None of our advisors thought we could get below eight. Nobody has ever done below six in Denmark for a multi-story building. We ended up at 4.7. We do it at a normal cost and only using solutions that are out there, but just by rigorously continuing to identify solutions and trying out and putting things together in a smarter way.
Speaker 1:That suggests that's already the beginning, because by the fact that you're going to use these blueprints probably the same, partly the same constructors, partly more industrialized meaning more can be done upfront, in fact, meaning that scale is not going to go up because you're going to iterate a lot. No, it's going to probably potentially come down in the next one and the next one because you've learned so much, exactly Because the first one is always messy, yeah, but there's something in that.
Speaker 2:Again, generally, the industry will start all over. Next time they will have a plot. They will go to an architect. They probably know the architect, but they'll draw a new project.
Speaker 1:Why is that so interesting? Because so many sectors have gone through that. Probably the beginning of the automotive industry until Henry Ford came about, or others until it became more industrialized, but it's, I don't know, going to a wind farm and not only redesign where you put the turbines, but also redesign the turbines every single time. Oh, they should be 100 meters. Oh, maybe 102. Let's see, let's see, let's look, oh, let's look. And how long should the wind span be? Oh, let's figure out this rotor system. Oh, we need magnets. Like how, in a sector that's so old as real estate, how come it's so almost artisanal and I'm not saying that in a good way, like in food, where we love the artisanal, blah, blah, blah. But how come that it's so manual and artisanal, although everything almost around the real estate sector has gone in opposite direction or a different direction, if there are any. Why is it so?
Speaker 2:There's still something around the fragmentation and lack of industrialization.
Speaker 1:I think so much happens on site, maybe as well A lot happens on site.
Speaker 2:There's something funny also around architects, because and I say this with, I would almost say, with affection, because I think architects are some of the most motivated to try and drive change. At the same time, they are a funny breed, somewhere between an artist and a craftsperson, or whatever you would call it. But, for instance, what we're doing now in Home Earth is also saying we're now working with a fixed team of advisors and collaborators, construction partners and so on, and we'll work with them on at least a handful of projects, because we need to repeat, on at least a handful of projects, because we need to repeat. But, for example, the architects, I said what if we come with you, which is the best two-bedroom apartment in the world? And I mean, of course that's subjective, but let's say, just, this is a fantastic apartment, but somebody else had done it and they're saying then we cannot use it, we need to do something else. And I said but it's the best department in the world, but we cannot use it. And there's also a problem in that.
Speaker 1:Yeah, because we just had a conversation on stage, actually here, on the open source piece and using what others have already done, and maybe architects. As an artist, you always lean from other people or inspire, but then you want to put your own in. Yeah, that might be a blocker.
Speaker 2:let's say so there's something there at least. And again, when you see depending on how, I would say how strong the municipality is, because they can also be a driver of this there's a lot of call it also architects that sit in the municipalities. But let's say you've done something in quality, then you also should allow it to be repeated both from all sides. But today there is a desire for everything to look different, and that's okay if it's only the skin that's different, but if you also need to change everything that's inside, then suddenly you're back to doing things from scratch and opening up for errors and so on and so forth.
Speaker 1:Everybody that ever has built a house or a real estate project or an office or has been in that process, knows how many things go wrong and are not as planned on the paper or not clear on it, and then it doesn't end up to be like that. You have to fix it. That's why probably over budget and over time is a big thing there. So you said, okay, we work with a fixed team and we basically showed that you can significantly lower the impact and the emissions by just using the things that are out there anyway. Nothing too revolutionary, nothing has to be reinvented, necessarily, but it has to be put together because the puzzle pieces are there. So that's the building piece and you've built it now. And of course, the next one is going to be hopefully easier, faster, lower costs, lower emissions. And then how much do you think is going to be iterated like next project?
Speaker 2:around like in terms of There'll be a lot of things. We're already now extracting all the learnings and now that we see the first asset there, I think we're really happy with the result, but not everything. So there are, for example, like a couple of the layouts that just take again a very physical thing that I think could be better. So we're now fixing those things. We are also spending a lot of time almost a little bit nerding, you could say with different elements. So we've spent a lot of time discussing floor heating versus radiators, and there's both a usability.
Speaker 1:We lost all the listen. I'm joking but, it's so. It's such an end because you need to and I think also like on farm design just to bring in like it those things make. They're gonna be there for a long time. You better think about it, not because it's the hype to all do floor heating, which which it is. But you came to a different conclusion.
Speaker 2:Yeah, and the interesting thing, this first project we have our own energy systems so we generate all our own heat through geothermal heating. So all our foundation piles have tubes in them. So we have 15 kilometers of geothermal tubes in our foundation piles. Is that a normal?
Speaker 1:thing, no, no, you could do it. It wasn't that you had to invent it, it was there.
Speaker 2:No, there's a company called Energy Machines, a Swedish company we collaborate with. It then runs into some heat pumps. We have some solar panels that generate both hot water and energy to run the heat pumps, so we're self-sufficient with heat. A little bit more technically, that means also that we get a relatively high temperature of water running into our heating system, meaning we could do with quite small radiators, meaning we didn't need a lot of steel. So we've chosen radiators in that system because it's both cheaper and lower footprint.
Speaker 2:The next project we're doing we have to use district heating. The temperature that flows in the system is lower. We need bigger radiators, more steel. So suddenly the confusion switched. So we're using floor heating in that project and that makes the design piece a little bit easier, because it's not in your way, whereas when we use radiators we spend a lot of time thinking around where and how can we place them in a way where they're not in your way, whereas when we use radiators we spend a lot of time thinking around when, how can we place them in a way where they're not in your way, so they're not an annoying thing.
Speaker 1:It's interesting how so many little details change. Of course heating is fundamental and it's going to be there for 50-plus years. It's not that you think after a bit okay, floor heating didn't make sense, let's rip it out and put something else. That happens often Different. Like the people after a couple of years figure out that choice or whatever choice they make actually doesn't make sense. But it comes with enormous costs and destruction and waste that, yeah, you want to avoid.
Speaker 2:But no, I agree. But so you say design construction, a big piece also in terms of driving sustainability and resource efficiency. For that matter, the other big piece we're working with is trying to rethink the relationship with our tenants. Yeah, I was going to get to that.
Speaker 1:What's this? Also that, and that connects very much funny enough, or funny enough logically, with the financial piece as well the performance of turnover of talents, happy tenants anybody that has ever managed buildings knows how difficult that can be, you're saying. Actually, another big piece of the holistic picture of real estate is, of course, the technical design, building materials, all of that, but also who's actually using it, who's paying for it and how does that flow? Let's say, work Exactly, and also that's fragmented. Now, right, the tenants are like, in the whole value chain you mentioned, there was no tenant, let's say, and there was no tenant with ever a relationship to the architect or ever like. If you end up renting one of these units as an office or as a home, you had no say or no idea which decisions were made to put in floor heating or radiators, no, exactly.
Speaker 2:And I think a lot of people in the real estate space talk about their buildings as assets. We always try and take a product mindset. With a product, you have users and they need to derive value from using your product, etc. An asset is something that generates cash flow and I think because housing is privileged in the sense that you say in big cities there's endless demand for housing.
Speaker 1:So you get away with it.
Speaker 2:So you don't need to really make a lot of effort in getting your buildings leased out. But it doesn't mean that you can't create value from being tenant-focused or customer-focused. But I often smile at the thought that in real estate, a lot of people in housing, a lot of people, a lot of building owners will outsource the property management to a service provider at the lowest possible cost. How many industries can you think of where you outsource your customer relationship to the cheapest service provider? How many industries can you think of where you outsource your customer relationship to the cheapest service provider? In most industries, your customer relationship is the most valuable you have, I mean there are some airlines et cetera.
Speaker 1:But yeah, in general, if you want to create value on your asset, let's call it again quote-unquote asset long-term. That's a very interesting incentive here.
Speaker 2:But also, I would assume, in agriculture. Unless you are in the commodity space, then if you're in the region, farming, having the relationship with the right off-takers, whether it's restaurants or whatever it is the right people on your land.
Speaker 1:Like we just had that conversation with Fred and probably that interview will be live around this as well. What's that relationship with the people that work on your land? If you're the land owner and you hold, like how? And it can be a very destructive relationship where you have just a yearly tenant coming in and, of course, if somebody is just incentivized for a year, imagine how they're going to take care of the soil, not because they don't want to, but there's no incentive whatsoever to spend any extra time, money, diesel or whatever to build that asset again.
Speaker 1:And soil is an interesting asset class in that sense, or interesting asset where, through management, you can improve it while you also have potential returns.
Speaker 1:And the maintenance is the farming, interestingly enough, if we take the metaphor further. But also there most of the relationships and incentives are aligned for very short-term profit and the long-term asset, as we know, is degrading. And so there a lot of people, luckily, are starting to ask questions like how do we align that with all the issues? Because the whole system is made for short-term, yearly contracts, even yearly offtake agreements. There's no long-termism on an asset that needs a lot of long-termism, and that's one of the reasons we're here recording this, and that's one of the reasons we're here recording this. What can we learn from another sector that seems to be struggling with that has figured out a lot of other things. Well, like making good money, returns are there, people are in houses to a certain extent, but there are a lot of questions around long-termism and what are the profitable structures to enable people to start thinking ah, actually we need 5, 10, 15, 20 years.
Speaker 1:Oh wow, what kind of other decisions would you make? Probably you would plant some productive trees and probably you would get some other things in place, if you don't have to think about the next season. That's it, yeah. And so what? And socially so, users, let's put a better word. Users like what have you been innovating there?
Speaker 2:Yes, so and some of it is not really innovation. Other things are, I would say so. One example we will have our own staff on site. We won't outsource it, and you will see a lot of call it older, family-owned real estate businesses that do that as well. Also others, also some of the professional institutional investors, but generally it's more a service provider industry. But we will insource that and take on that call it complexity but also own the customer relationship ourselves, but others doing that. Then we're trying to build trust in different ways. So, moving back to the design piece, to give an example, we've spent a lot of effort on call it design for both low operating costs but also for low move-out cost. And I'll give you a very tangible example visually. So in an average apartment we have your I mean, you have, I think it's called floor skirtings.
Speaker 2:Yeah, so a piece of wood or whatever the piece of wood that sits on the bottom of the wall just above the floor and when you vacuum and so on, so you don't bounce on the wall, you just bounce off this curtain and in an average apartment and there's I can't remember how many meters it is, but I think around 50 meters of floor curtains or something like that. And every time somebody moves out you spend in Denmark on average roughly 700 euros on painting them and the tenant has to pay for that At a cost of 200 euros. We can install solid lacquered oak panels and then they don't need to be painted. So we've done that Because they get bombed but nothing happens. They get bombed but nothing happens. So we've done that now and actually the tenants feel it looks more exclusive. But the cost for an average apartment up front for us is 200 euros, but it saves every tenant that moves out roughly 700 euros. Do they recognize?
Speaker 1:that People that have moved a lot, maybe, and vacuum a lot. Yes, but they feel it's more luxurious. Which?
Speaker 2:is nice, they feel it's more luxurious. I don't think they. Probably, unless we've told them, they probably haven't thought about that. But again, it's a way of building trust and we would like to get to a point where we can guarantee what the refurbishment cost will be when you move out.
Speaker 1:And I think we can get there, so already with the getting into the contract, in the social contract as well, saying okay, we know this might not be forever and that's fine, and we know what it costs you when you move out. Don't be scared, because everybody has had that feeling. If you've rented, you've put this deposit and then you need to move out, get it back to quote, unquote the original state, whatever that means, and then usually you feel excuse my french pretty screwed by, whatever that happens, and your deposit is gone. That's the general and it's that fear, weird moment in a moment where you're already moving which is never fun and there's this weird relationship with the landlord or the service provider that then has to decide oh, this white looks good enough to get the deposit.
Speaker 2:It's awful, exactly, and it's the same here. And then you typically put down three months deposit and most people expect that it's gone, and mostly it is gone, and there are regulations and rules around it, but people don't really understand it or know about it, and so on. So you're a little bit at the what's the right english word. You're at disposal, no, at the mercy. You're at the mercy of others to some extent, and but I think you can. There are ways for us to design buildings that are cheap. Another thing is, when you have wooden floors today, often you don't have what when you step from one room to another across?
Speaker 1:I don't know how it's called in English, like under the door, basically Under the door exactly.
Speaker 2:But we've said so. We do section floors now because otherwise, if you just have one big floor in all of the apartment, if it's really worn in the kitchen and you want to sand it, you need to sand everything. But now we do section floors because it means if the kitchen is worn, we only have to sand the kitchen. It's another way of and for us it's a way of building trust, but also doing it sensibly from a societal perspective.
Speaker 1:There's no benefit in Sanding the bathroom if you don't have to, yeah, exactly. Or the bedroom, yeah, yeah.
Speaker 2:And I remember I was, we were, we just moved a couple of months ago, but before that we were a tenant for three years and when I moved in I asked them what I should expect and they said I should expect, even if I moved in three months, that they would use up the entire deposit because they would paint everything again, that everything had just been painted and it just doesn't make sense. But moving on to social, and probably the biggest thing we've done is that we've created a profit-sharing mechanism with tenants so actually tenants and we see it as a way of recognizing the role that our customers, our tenants, play, and if we didn't have a tenant, it would not be a valuable property. So, even though we don't need to do it to get tenants, we want to align interest with our tenants. We want to also recognize the role they play.
Speaker 2:So we are sharing part of the profit and at a company level, it's roughly 10% of the total value creation that will go back to tenants. That will go back to tenants. Most of it goes back as a bonus or could also be a discount on their rent in the following period. So, based on the results this year, then they get a discount next year. But also some of it goes back in what we call a community allocation. So it goes back to the community at the property and they can spend it on having events, installing a playground or whatever. So it creates a budget effectively for the community and we see it as not just a cost, we see it as an investment into our customer relationship effectively and believe that we'll have less churn tenant turnover.
Speaker 1:Is that a big thing in a residential real less churn, tenant turnover Is that a big thing in residential real estate, the churn? Is it from an economic perspective? Let me ask the question differently does it make sense? Do you think it makes sense to invest in that? Also just purely economically, because you have people taking care of the building and all the surrounding.
Speaker 2:better and less change, which, because change, is always expensive for everyone, and less change, which, because change is always expensive for everyone, I would say it's at least an underestimated effect. So the consequences of having churn is bigger than I think a lot of people account for in their spreadsheets the line of churn.
Speaker 1:Yeah, it's massive. You miss rent. Obviously you miss rent Costs searching changing Exactly. It's not an under I. Obviously you miss rent Costs searching changing.
Speaker 2:Exactly.
Speaker 1:It's not an under. I think it's a big piece.
Speaker 2:And a building just gets more worn when people are moving in and out, bumping through the elevators and all those kind of things. That's a good point, so there's definitely value in that.
Speaker 1:It's annoying for the other people because you lose sense of community. People constantly not all many people have been in buildings where it was just a constant change Doesn't make you feel very safe, nor let's hang out with the neighbors and probably it leads to more churn. I mean, there's a self-fulfilling prophecy there.
Speaker 2:And usually in other industries where you are less privileged in terms of the need for your product. So airlines, they do frequent flyer miles and so on. So this kind of concept exists in other industries but it's not seen really in housing because I guess you don't need to do it but it doesn't mean there's not value in doing it. And you see there are also second-order effects that we're starting to see and so I think we'll see over time hopefully a different behavior and a different relationship with our tenants for some of these things. But the municipalities we operate in they also appreciate that they can see we are a long-term, responsible kind of owner. So I would say in the development processes we're in now we see an openness to being flexible on some of the needs we have. That wouldn't be there if we were a short-term developer just for profit.
Speaker 1:What are examples of? Because you need local municipalities I mean you just mentioned before there could be an architect there as well, which is once another shiny object. But they are a fundamental stakeholder in this whole process because they can say yes or no or really bring in animals or something. Even though you potentially might be allowed, they can make your life pretty miserable if you don't have them with you.
Speaker 2:Let's say yeah, in one project we were allowed to build more than we expected, so simply just increase the utilization ratio of the site. Which changes your spreadsheet, changes our spreadsheet. In another project, the one we just did now, there were a number of things. Actually, the big one was that we were allowed to build smaller homes. I remember, and then anyone in that area. It's an area where it's a development area that the municipality has been part owner of and when it's done there'll be 3,000 homes. We are 158 out of those, but compared to everyone else, we're allowed to build smaller apartments.
Speaker 1:Why wasn't that allowed, like just for people to? What's the? That's a long. What is scared Is it regulation that's historic, scared of squeezing more people in per square meter than, let's say physically is comfortable?
Speaker 2:No, but I would say there's a misconception around what is livable, in a way, from a lot of municipalities. And then the other thing, at least in our part of the world, there's a big desire for municipalities to have families come in rather than singles, from municipalities to have families come in rather than singles. But again, the demographic development we see everywhere in the Western world is that we're growing older, there are more singles, et cetera. So we need smaller households. From a planetary perspective it's actually also a very big discussion we need to have. Everywhere in the Western world average housing size is going up and has done for quite a few years.
Speaker 2:So a new-built standard house in the suburbs in 1960 in Denmark it was 120 square meters, today the average is 210. And so that's a family home. But of course, from a planetary perspective, a resource perspective, we can't continue that development. But then when you have demographics going the other way and municipalities are still pushing actually, so they have a preference for families and they're all hoping, I think, that the neighboring municipality will take the singles, which is just not how the world will develop. So there's a push towards bigger units, which is a discussion we're having here. I don't know if it's the same everywhere else, but it's at least a topic here.
Speaker 1:And so did the fear of the municipality come out partly, or I'm just projecting fear that you are building smaller and thus you only have singles, or actually do you have families applying and getting in as well, and are you able to live in these smaller?
Speaker 2:units. We have families, but they're not that small.
Speaker 1:I said smaller.
Speaker 2:Our average unit is 70 square meters, but it ranges from, I think, roughly 40 square meters up to 120 or something like that.
Speaker 1:You're also wanting to show and, of course, from a financial and real estate like the more units you can fit in in a smaller size and people are still happy and don't notice it or maybe pleasantly surprised. But actually I can do right with 120. I don't need 200 or 300 or whatever, but has that been like in terms of the first tenants and the people coming in? You're lucky. Of course, in the real estate space there are always people looking for houses, at least in these areas. Have you been seeing families deciding to maybe go smaller or they come to afford the bigger one?
Speaker 2:I guess we see both, but we've also had an interesting and this comes more from a planetary perspective a discussion internally will we rent, call it a three-bedroom apartment for a single? And our conclusion so far is no, we will not. A three-bedroom apartment should be used by somebody that needs that much space, and that means that even somebody that could afford it if they should go live somewhere else in the principal. But hopefully we can push them to take something smaller by also making smaller units.
Speaker 2:We need to make small homes but great homes. So there's also something about and that goes back to the iteration also how can you make great homes in less space and that's doable, but examples where it's gone really badly and small units are impossible to furnish. And you see other examples where it works great and where you're not.
Speaker 1:It's really a design question.
Speaker 2:It's a design question. So one of the things because the smaller units you do, it gets easier if you call it built-in furniture and we will start doing components of that Not everything, because people should be able to personalize it, but there can be something around your storage and bed solutions or a lifted bed or whatever it is, and we'll start also implementing things like that to make small units well-designed for what it needs.
Speaker 1:Yeah, it's such an interesting gentle push or nudge towards thinking space consumption. What do you need? To be comfortable, and not in all situations, but I would safely say 80%. You could do with a lot less and a lot smaller and be absolutely fine, potentially more comfortable, if it's well done.
Speaker 2:In both. That I also think, where I've had a number of discussions with various municipalities around. One thing is what people can afford. Another thing is what people want. I think we're getting. You see, people have different consumption patterns, if I can call it that, and so I think some people actually prefer to live on 30 square meters. Maybe they don't even need a kitchen because they don't want to cook, but they want to travel all the time. So they don't want a 50 square meter apartment because they want to reduce cost. They just need, effectively, a big bedroom and a bathroom and they want to travel and they want to go out to eat. And so I'm not saying that's the stereotype, but I'm just saying people have different needs and we should accept that.
Speaker 2:In this project we've talked about a few times that it's just being completed. Now it's 20 minutes on the train line west of Copenhagen, it's towards Roskilde. The municipality thought well, why do you need studios in this project? Because you're not really going to attract students to this area. There is a university on the next train stop, but most of the students that go there they live in Copenhagen actually, and we said we agree, it's not going to be a big student thing. We have 16 studios, so we don't have a lot, but there's been massive demand for it. But the interesting thing has been it's not just from students there are some students, but it's also a 55-year-old single lady, et cetera who wants that kind of solution. So they were the first to go and it just so. Of course there's an affordability element to it, but I think there's also a prioritization element to it for some people.
Speaker 1:And do you see in some of these projects like the community piece or the, because you make them deliberately smaller, does it mean that some or more of that is shared then as well, Like community spaces, the laundry maybe, like you see that a lot in Germany and other places, like you don't need all of those functions in your house Exactly, and how, or even maybe certain tools. Here we're sharing one vacuum cleaner on the floor and it's absolutely fine until it disappears.
Speaker 1:But you don't need, everybody needs a vacuum cleaner, nor a washing machine, nor et cetera, et cetera. How? Because then you get really into the personal life of people and the sharing piece. How has that been in this first project and how do you see that go?
Speaker 2:No, and I think sharing solutions is clearly part of it, so especially when you do smaller and more compact units. So for those 158 apartments, we have roughly 400 square meters of common space. A bit of it is laundry. We also have four guest rooms, so you don't need to have a guest room in your apartment, but if you have family or relatives that come to visit, you can rent one of the bedrooms and it's super cheap.
Speaker 1:Because it's often. Let's keep an extra room just in case for six days a year or whatever. Yeah, exactly.
Speaker 2:But then we also have kind of a communal kitchen, dining space et cetera. We have some co-working space and so on.
Speaker 1:Since it's not a room use, usually I need a studio to record podcasts, for instance.
Speaker 2:So we will. Usain Urban Partners have done a lot of work on this that I was also part of, so we have quite a lot of experience in that area, but I'm still learning. But I think, yes, that is part of the solution.
Speaker 1:When managed well and of course you're going to have your staff on side and so then it becomes way easier to figure out where the laundry is or who's going to book that room, and probably enable people not in all cases, but you need less if you have access to those things once in a while when you need it, which is always a discussion but when it's managed really well, you can just see people need less and it's nicer because there are many people. What do we long for is community and people around and having a chat and a coffee and meals together, except being locked up in our massive apartments and not seeing the neighbors ever, exactly.
Speaker 2:And so laundry is one of them. In this first project. It's not possible to install laundry in the smallest units. We installed it in the biggest family units and in all the medium size. There's a possibility of us installing it, but we haven't done it. So there's a laundry room, but we acquired another property last year that somebody else had developed and they had not installed it anywhere. But it's possible everywhere to install it, but not many people have done it, and we've specifically. So we're moving more towards that, that we will have space for people to install it. But we won't do it and suddenly, but rather we'll put in like a cabinet, so it becomes a choice between storage or laundry. But the other thing is we're putting the laundry next to the communal kitchen and the co-working space, so you could say you can go and hang out or you can sit and work while the washing machine is going. So I think we'll also be testing out these solutions and getting to the answers there.
Speaker 1:Yeah, and I think it's so. Much comes down to again the community side. If you are there with people that have been there for a while and you are in certain rhythms and it makes sense and there's not a lot of turnover or turn churn and somebody on-site that manages as well, it's also fine, of course, in different situations, if you have to wash a whole lot because you have small children etc. There's a different phase in life, but after that, how much do you really need to? And so it's a very interesting experiment. And all of that leads to more units per building and thus, because you're also definitely out to prove that this makes as much sense financially as doing it quote unquote traditional, conventional I don't like the words, but let's say the current way and prove that this makes just also economic sense.
Speaker 1:Yes, correct, it's early for that, but do you see that you've raised commercial, semi-commercial capital? You've raised capital for this. This is not a social experiment. Let's see if we can do this without any money. This is definitely you want to prove to those investors as well. Look, these are alternatives compared to investing in just your next run-of-the-mill standards real estate tenant project.
Speaker 2:Correct, and so, having been in this industry for 25 years now, I'm actually convinced that usually we're creating something at least which, from a risk adjusted perspective, is a better offering for investors. But they need to accept that we put things together in a slightly different way. But I generally feel that a lot of investors are underestimating, kind of, some of the forward-looking risks that are facing us. But I think even just with a traditional lens, I think we'll actually get to something which is better in terms of also financial returns. But it's been a journey, and what has been interesting has been when I come from a company where we mainly work with large and international institutional investors.
Speaker 2:I thought when we launched Tome Earth that we would be working a lot with the impact investing space. You and I have talked about this a bit, but we have very few actually investors that I would call dedicated impact investors, sadly. I hope we'll have a lot more because I think mentally there's huge alignment with what we do. But I would say we have. Most of our investors today are what are more called innovative people who believe in trying to do things differently and can see the value creation from it. So we have a lot of family offices, former entrepreneurs. We have something called IFU, which is like a state green investment vehicle. In Denmark we also at Christmas we had our first pension fund come in and are now in discussion with other pension funds and so on. So I think the institutional investors are increasingly also in seeing the merits of what we do. But the fact that the packaging is quite different makes it hard for them.
Speaker 1:Because it's not a 10-year, this is a longer term. Yes, and that probably puts you on like it's difficult to tick all the boxes. It's just we build. It's mental, it's a mental model that you have to, but the same in agriculture and food. Like you probably don't want to get out at year 10 or 7 or 8. You probably want to, especially with degraded assets. You want to hang around for longer because that's where the value is created. But if it's in your rules we only do these type of funds as a pension fund, then yeah, how do you get around that unless you have a lot of weight and you can really like push the ic to accept.
Speaker 2:Okay, let's do this trial, let's see. At least there's there's a lot of tradition in that and there's just some structures that are now very recognizable and that people are used to. And when you come with something that's different, where you don't know what your exit is, you're introducing and call it a different reward system, if I can call it that. And now we're talking about the social component with tenants. We're still an 80-20 model, but we as a team get much less than you do in a private equity form.
Speaker 1:So 80-20 in traditional is 80% for the investor 20% is like a profit on your value created, of the extra value created.
Speaker 2:Yeah. So typically you'll in venture capital structures or private equity structures. You pay a fee to a manager and then the manager also gets 20% of the profits once the principal investment amount and maybe also a preferred return gets repaid. Our model ends up being similar for the investor with around 80 percent, but instead of 20 percent going to a manager, then 10 percent goes back to the customers of the business, the tenants. Five percent goes to a foundation we have in the structure also that creates kind of a mission log, so that locks in the longevity of the business, and the money in the foundation will be used for innovation and research, and then 5% is the bonus program for the team. So for an investor it means suddenly they have alignment with the customers, they have alignment with the team, they have alignment with I would call it society more broad.
Speaker 1:It's not 80-20. It's still 80-20, but the 20 is cut up in different pieces. Yes, and then they have to get over and actually we had a similar conversation with Thomas Hugenhaven here at Planetary just went out the interview because then investors have to believe that you're going to be motivated to work your ass off for 5% and not 20%. And that's the very interesting if they even get over that, because of course you're in this because you're motivated to change the sector and not because you want the 20% bonus necessarily or profit at some point. But that's the underlying realization, or the underlying narrative is, unless we pay people a lot of bonus, they're not going to run.
Speaker 2:Yeah, and we get the same question. But I would also say we can get. I'm super proud of the team we have and they're also very talented people who don't want to work in private equity. They get out of bed for other reasons, yeah, and just Not for money Would not go there. Yeah. But I think I saw your LinkedIn post with Thomas and I'm an investor in Planetary Impact Ventures and a big fan of Thomas and the work they're doing and I think you posted around how they turned down an investor for $7 million.
Speaker 2:We had a bit of the same and it was interesting and it surprised me because once we came out in the early phases and said we're going to do something which is going to be both green and social, and a couple of the institutional investors I know well came forward and said that sounds exciting, let's talk. So we talked for a lengthy period of time. In the end, we couldn't close it and it came down to the business design they want. If we'd come up with that 10-year fund saying we're going to be super green, super social, 10-year fund, 80-20, fees and so on, they would have done it. I'm totally convinced. But the problem for me was that's where I came from, I didn't feel that we could deliver really green, really social, unless we also changed the business design.
Speaker 1:So we had to say no that's a very interesting point, also on Thomas's conversation. Of course we'll link it below to have the conviction to say no to a significant amount of money because at that time the fund was 22. So basically a third extra would have been would go from 100 to 130%. So 22 to what is it? 29. That's a lot of money for an early stage fund, for a fund in an early stage.
Speaker 1:But then to say no to it because it doesn't fit with your conditions and, like in this case, because of impact measurement they felt they would have to report on things that would steer their investment decisions, but also believing like we're going to find other more aligned capital, like more, like In general this abundance, which is always easy to save and not so easy to live in, like scarcity versus abundance. We're going to say no to this. This is not the only money that's out there. We're going to find other more aligned capital, because it's not easy to, in a startup phase as well, to say no to still a significant amount of people.
Speaker 1:I had somebody comment on that interview saying I would have taken the seven and I would have made it work, and so it's like how, yeah, it's when reality meets that decision, you say, okay, are we going to go through that door or not? And of course you've been in the space. I think Thomas has a lot of experience as well. It's different than if you're 18 or 19 and you think that's the only option you have, maybe to this, and then you run, but you're going to be stuck probably.
Speaker 2:Yeah, no, and in that sense, I'm in a very privileged position. Once, when we built Urban Partners, there were times around the global financial crisis where it was around surviving, and this time around you can say I came from a privileged position of both strength and experience, but also having access to resources, but still. But I would also say for me it was in many ways it was an easy decision, because if I'd gone the way they wanted, it would be Urban Partners 2.0. And then I would have stayed.
Speaker 1:I mean, there's a lot of Were there, discussions in the team around those moments when these larger potential investors put pressure on the structure.
Speaker 2:There were discussions, but I think the people not all of them were intimate with these type of things, so they were more in doubt, but I think the people that understand these things were also committed to doing it differently and in that sense, it's a test and but for me it was the only thing that made sense. If that make, I'm still super proud of what Urban Partners does, but this was to do something different. Yeah so.
Speaker 1:But it's so interesting, like to have that, of course, from a luxury perspective, from a perspective and a position of privilege. But if you don't do that, like who else is going to do it? If you don't push hard for I think many people recognize that in the region space as well If you don't push for that and you take shortcuts or take decisions that don't really fit out of a position of privilege, either because you own land or because you've created wealth, et cetera then who's going to do that? Who's going to question the fundamental pieces that we all see are potentially not aligned or wrong or could be better? But yeah, to do that still and say no to a significant investor requires a lot of conviction in that there will be others and this is the right thing to do and they might come around at some point and say, actually, we don't like the 10-year thing anymore.
Speaker 2:It's not easy, but I think when I think about what both Thomas and we do, I think a lot of what we do in the business are incremental improvements in a free horizon framework that you're probably familiar with. I think a lot of it would probably be horizon two, free Horizon framework that you're probably familiar with. I think a lot of it would probably be Horizon 2. But I think Horizon 2 Plus or Horizon 2 Minus.
Speaker 1:Look at me doing my homework. No, we just had a nice deep dive with Danny Almargora. Shout out to Danny if he's listening.
Speaker 2:There's probably a span from both 2 Minus to 2 Plus, but I think actually the business design piece for me is where some of the Horizon 3 stuff comes in and I think it's so needed and whether it's region farming or urban development or whatever it is, we need different financial structures that usually operate with a different value system and value creation perspective and time horizon.
Speaker 1:Yeah, they probably feel a bit out there because they're Horizon 3, which means they are. But if we can already build them now, with the current All the constraints and subsidy schemes we talked about on stage before as well, and if you can already build now examples that work, whatever work means, imagine if things start to shift. Yes, and we see that. We just had an interview in India where, with India I didn't go to India where government policy is shifting fundamentally, like natural farming has become from the Modi government. Of course, we're going to see how that exactly translates onto the ground.
Speaker 1:Natural farming became the agriculture push of the nation, in this case the subcontinent, because of 20, 30, 40 years of grassroot movement showing examples, tens and tens of thousands of farmers have transitioned. The cases have been documented. You can see the profit increase, you can see what it does to health, et cetera. That was needed for a government to recognize. Plus, on the other side, the current agriculture system, very intensive input driven, is failing almost everywhere, but specifically in India as well. So the alternative is going down, or the alternative is coming up and the conventional is going down, and it's very like farm suicides are at an all-time high, protests everywhere, and so the government starts to recognize it. I think we're going to see that in many other sectors at some point. But we need credible alternatives at a certain scale, not just, oh, we did this once and yeah, it did work, but we also did it 10 other times it didn't work. So, yeah, who do you want to support? No, we need credible alternatives, voices for these pioneers and investors that back it, that are comfortable with like now investors in Brazil seem to be relatively comfortable with agroforestry, like you can go to a bank and you can develop it with a certain carbon piece, et cetera, and you can get large projects off the ground.
Speaker 1:10 years ago was impossible, and then probably at some point, there will be some government incentive, either well-structured or not. We always see that. But you need those Horizon 3 examples to preferably work in the next couple of years, to have something to point at when the rest of the world wakes up to the challenges we're in. To finalize, because I want to be conscious of your time and we already went over what we had scheduled, but to ask a few questions. We always love to ask in an audience. Actually, we did it here before. Let's say we're in a theater in the financial heart of Copenhagen. What would be your main message from? Because you've looked at food and agriculture quite a bit, of course, deep into the real estate space in general. You've talked to many investors. If you want to plant a seed in the mind of the investment world, let's say the theater is full of investors.
Speaker 2:They're inspired because we had a nice session on stage, but we also want them to remember something tomorrow morning, preferably when they do something at work, like when they decide what would be a seed or something you want to plant in their mind that hopefully remains with them for the next few decades, as we need them and investors in the food and agriculture, space.
Speaker 1:No, in general I would say interested in, let's say, sustainability, interested in also build environment Like what are managing their own money and other people's money? What should they know, what should they remember, what should be a thing that they often repeat to themselves? Ah yeah, I remember from that evening Rosman said, just to keep in mind.
Speaker 2:I think maybe two things come to mind. One is call it again. Coming back to the long-termism, I just and we've talked a lot about it, but I just think there's so many, both investments and also how we see public markets operating, really focusing on short-term solutions and, I think, our short-term outcomes. I think what we need now is really long-term solutions and I think it will also and there's lots of proof and analysis of this that will also drive better long-term value, but in a broad sense, not just financially but also financially. The other thing I would say is and maybe we can connect the urban space and the agricultural space here Always connect financials with a product mindset, if I can put it that way, and from outside in, I think probably in the agricultural space there's a very strong product mindset and not always that great a financial understanding, whereas I think in the real estate space there's a very strong financial understanding, whereas I think in the real estate space there's a very strong financial understanding but not always that great a product interest, if I can put it that way.
Speaker 2:And I think she's interesting. You can say I think at the end of the day, regardless of what business you're in, you need to deliver a great product. It needs to provide value to somebody, but you need to combine that with a strong financial understanding of how you create value and how you drive value in that business.
Speaker 1:It's such an interesting point as well. I don't know if there's a part of the disconnect in the real estate space, because most people designing building, being part of that, don't end up living there as well. It's not that they're eating their own dog food, I think, is the expression, but anyway, there's no skin in the game. In that sense I could be an architect. I'm not saying probably it happens Design the most amazing, very stylish, very, let's say, form of a function, because they don't have to live there anyway, and so, of course, when they design their own houses, then it's a different, but there's a disconnect there. And then I think many of the region farmers we know I mean they eat their own food. There's definitely a very direct connection to how I treat that, how I build it. But if you look at broader, probably as from a product, if you're seeing land as the sort of basis or platform, like who's using that, I think there's a lot of improvements possible there. Like, who are people coming on your land to work with you, to collaborate, to pay? Farm workers are probably the most squeezed group of laborers on the planet and in horrible conditions in many cases. And how do we completely redesign? Okay, we have a group of people that owns land. We need to have a lot of discussions on land ownership. That's a separate track. But then let's say you own it and how do you manage that to the best, ecological and financial? We just had a conversation, on stage as well, with Fred on these are companies, these are financial things as well, and if you don't like spreadsheets, that's okay, but you probably would like to know the books at least. Do the pigs make money and do the trees make money or not? Otherwise, at some point, when subsidies change and they always do and they always will at some point you're going to be in a lot of trouble, as we see now in the UK and many other places. And so, ok, long-termism I would have guessed that.
Speaker 1:And then the second one was very relevant as well. And then switching the tables, or turning the tables in that sense. Let's say you're on the other side, on the investor side, and for some reason your Bitcoin investments did really well, or some inheritance comes in, and suddenly you are in a position of putting a lot of money, in this case a billion euros or a billion dollars. We like to say I'm not saying anybody should have that concentrated wealth. But let's say that happens. Tomorrow morning you open your bank account and wow, or you get a phone call from your banker, probably like what happened.
Speaker 1:What would be? I'm not asking for investment advice, obviously, but what would be priorities if we had to put a lot of resources to work? Could be very long term. But what would be focus areas of you where you would say, okay, I will put 150 or a big chunk of this would go into material research or whatever, or actually buying properties and redoing it, or buying I don't know a food company? What would be focus areas if you were in a lucky position or unlucky position to make those kinds of decisions overnight?
Speaker 2:Yeah, that's an interesting question. I think where I'm at in my life, it would all be focused on call it positive impact. I think there are in my mind three big transitions, at least that I can think of Only three. No, there are probably many, but there's the energy system, there's the food system and there's the built environment. And I think if we can find a way to tackle those three buckets, then I think we can also solve the rest. And there's both a planetary component to all three of them, but all three of them also have a social component to them. My sense is that the energy system is probably the easiest to fund, to some extent, the transition going on there, because it makes sense by now. It's cheaper.
Speaker 1:The billion could be out of the door, so I wouldn't put it in there.
Speaker 2:actually, I think my motivation would be to invest it both in the built environment, which is what I know well, but also in, call it, changing the food system. And I don't know how you can do it, but there's something around land use, industrial meat production, etc. How we get to more. If we could ban industrialized meat production and get to more silopastural system, that will also drive more plant-based food.
Speaker 1:Are you answering the magic wand question already?
Speaker 2:But as an investor, I would probably invest into the companies that were driving innovation in those sectors. I again talking about the impact investing space, I feel that impact investors should be the most risk willing out there, that should be the ones that push and try out new models et cetera. So I would be motivated to operate there models et cetera, so I would be motivated to operate there, I think, which is less an investment, but let's say I ended up investing into also region land and so on. I would also be motivated to try and for advocacy to try and change, for example, industrialized meat production et cetera. I think that could benefit, for example, region farmers tremendously if we moved in that direction. And I think initiatives like the School of Moral Ambition and so on, funding initiatives like that that will go in and work towards creating meaningful change in regulation et cetera I think could be a good investment also, if you position your portfolio correctly, to be enabling yeah, yeah, yeah. So I think something there.
Speaker 1:Yeah, and I think the industrial factory farm animal protein. Like we haven't found the angle yet to unlock change there. I think Moro Ambition, the School of Moro Ambition and the team are looking at that and I think we need a lot of smart people figuring out because a lot of things are even semi-illegal, but just never. We never are able to regulate. Like a lot of the pollution coming off. You really don't want to live next to any of those animal factories and somehow they get away with it, like here and even worse in the US, obviously in other places. But just a map came out of the Guardian of this concentration and it's just growing Like. It's growing in Spain, it's growing in Northern Italy, it's growing in the Netherlands, it's growing in Denmark, it's growing somehow. That is accelerating. Or yeah, how do we? Of course there are the alternatives.
Speaker 1:We're just in the midst of a series on the role of animals in agriculture, but somehow it feels like that literal beast of factory farming keeps accelerating faster. Billions are putting into it. It makes sense financially because it makes sense, otherwise we wouldn't be doing it. It's semi-legal, illegal, it doesn't really like. The pollution is all over the place. Nobody really has figured out a way to stop it or to and the farmers are not happy with it either, like none of them are happy. A lot of land is used for the feed, obviously, like it doesn't make sense from so many different perspectives and somehow we've been saying that for 20 years and it still. It exploded in the last.
Speaker 2:Yeah, and I think if a lot of consumers realized how this is working and of course you have your Netflix documentaries and things like that and yet but if more people really realized how the food they put on their plate is produced and call it the animal welfare that goes along with it and so on, I think things would. You would think that these things would start to change, but you're right, it seems it's so hard to change, but I, for example, in this country, agriculture has also always been a huge part of Danish society, so the agricultural lobby is so strong here, but today there are actually very few people employed in agriculture. But yet I heard something like that for every politician in our parliament. The agricultural lobby has two lobbyists for every person in parliament.
Speaker 1:So it's not such a surprise.
Speaker 2:And if you take all the organizations that try and change the system, they have far less resources. So I think until we start funding kind of lobbyism to a much greater extent for the change that we need, it's going to be hard. We need to outmaneuver them.
Speaker 1:Shout out to some friends in the space Ayada obviously just came out with a report. Actually, on the animal side was interesting as well. None of the farms they surveyed was importing anything beyond their, I think, bioregion or very nearby. Most of them were producing all their own animal feed as a start, not to say that's perfect, but it helps tremendously with the energy input output flow, of course, compared to many others, and it's a very Horizon One place to be and it seems like a sort of self-reinforcing GBS.
Speaker 1:The big Brazilian one just went on the New York Stock Exchange with all the controversy. I think NGOs have been fighting that for months and still happened. So I don't know if that's the last piece of an industry, but it also feels like it's consolidating, it's getting bigger, it's getting more destructive with all the issues for animal welfare, and most of the workers in that sector are, let's say the least, fortunate in any sector, probably. So I think that would be an answer for your magic wand question as well. Right, yeah, you went seamlessly from owning a billion dollar investment vehicle I'm not saying fund to the magic wand, and I want to wrap up as well. We covered a lot of ground, feels like we can still do a lot of other pieces.
Speaker 1:I'm very thankful for, obviously, the work you do and to take the time here as a not an outsider, but definitely somebody with a lot of experience in another sector to come on a podcast where we talk quite a bit about soil, but also about other investment structures and vehicles and other ways of thinking, and there's a lot we can learn. And there's probably some other podcasts we can record on where we integrate agriculture and real estate. I haven't seen so many examples, but I'm very curious about it, so shout out, please get in touch, because I think many people want to live on regenerative farms and we should figure out ways to do that, and we know how to finance real estate, so it might help actually a farm as well, which would be nice, and there will be maybe a future, future episodes around that. But for now, thank you so much, rasmus, for hosting us here because we're in your studio, and for coming on to share about your journey.
Speaker 2:Well, also thank you from my side, and I'm a happy listener to the podcast, so I look forward to continue to follow the podcast as it moves forward. So thank you so much for the work you do.
Speaker 1:Thank you for listening all the way to the end. For show notes and links discussed, check out our website investinginregenerativeagriculturecom slash posts. If you liked this episode, why not share it with a friend and get in touch with us on social media, our website or via the Spotify app, and tell us what you liked most and give us a rating on Apple Podcasts or Spotify or your podcast player. That really really helps us. Thanks again and see you next time.
