NREP steps up green action

Being carbon neutral by 2028 without offsets is just one of the many challenges Rune Kock faces as the company’s new real estate boss

Rune Kock, new real estate head at Nordic property developer-investor NREP, is at the start of a major mission to transform the company’s portfolio. The firm, which manages roughly €18 bn of assets mostly in the Nordic countries, has recently pledged to fully decarbonise its portfolio by 2028 – the earliest year claimed so far by any international real estate investor in the race to net zero.

Speaking in his first interview since being promoted to real estate CEO in October, Kock reckons sustainability is by far the most important challenge he in his new position will have to face over the next few years. In fact, he admits the goal is already making him sweat. ‘If we are going to succeed with this ambitious plan, we need to learn fast how to drive our portfolio with cleaner energy and how to change the way we develop buildings,’ Kock told PropertyEU.

Carrot and stick
To accelerate its journey to net zero, NREP has introduced what Kock calls a carrot and stick system. While the carrot is a green incentive to financially motivate project teams to implement sustainability measures exceeding market standards, the stick is the introduction of a self-imposed ‘internal carbon tax’, an embedded reserve for carbon decreasing initiatives, in all of NREP’s real estate investments. This unprecedented move in the industry is supposed to help drive innovation by putting a monetary figure on the cost of carbon to the business and is expected to bring the company nearer to its goal of reducing embodied and operational CO2 emissions by 30% and 50% respectively before the end of 2023.

‘The investment team is asked to calculate all of our investment with a reserve for carbon decreasing efforts, as if there was a carbon tax of €90 per tonne CO2,’ Kock explained. ‘This means that we are now evaluating the attractiveness of an investment based on how green or ‘brown’ it is, assessing its environmental performance from construction through to operations.’

The tax for embodied emissions during construction is expected to be a one-off that is underwritten at the time of asset completion, whereas the operational emissions are annually reoccurring. To top this revolutionary green initiative, the carbon tax will be re-invested to improve the sustainability profile of the assets, de-risk them from an investment perspective, and enhance their exit potential.

‘This is what we believe is needed to drive the whole business to change,’ commented Kock. ‘I am a strong believer that we as a society should use the carrot and stick model to steer the way people do their investments.’

Another way fostered by NREP to drive sustainability is through experimenting and innovating. Last year, the group launched the urban sustainability tech venture capital firm, 2150, which raised €268 mln for its latest sustainability technology fund. This deepened NREP’s commitment to a green transition of the built environment with the willingness to try out new findings in its development activities.

‘The venture capital fund focuses on innovations that can drive change, including change which is applicable to real estate. For example it was 2150 which backed a company that developed a technology to produce a type of cement which is able to capture CO2 emissions, something we are introducing in some of our new projects,’ Kock said. ‘The experiments which have proved successful could thus be incorporated in our portfolio and scaled out.’ These have so far included the use to a much larger extent of solar panels, the introduction of CO2 neutral geothermal heating, as well as new building materials and a much stronger focus on recycling and upcycling.

Learning labs
NREP is setting in motion three different carbon-neutral projects in the different market segments where it is active – logistics, residential and offices. If these projects will prove to be a success, they may be scaled out while providing important learnings for further developments, for both NREP and the wider industry.

The first such project to be launched is a 20,000 m2 logistics facility in Bålsta, near Stockholm, which aims to become the world’s first logistics building to achieve 100% CO2 neutrality over its entire lifecycle. In a first for a logistics property, the firm intends to use low-carbon materials which have the potential to reduce carbon emissions by circa 60% compared to typical logistics buildings. Traditional steel walls and roofs will be replaced by a cross-laminated timber structure and façade. This will be coupled with a new type of organic insulation that has potential to bind more CO2 than it emits during the production process. As the foundation NREP will use green cement which enables a 30% CO2 reduction compared to a typical warehouse foundation. To succeed in its ambition to reach net-zero the firm will take advantage of the carbon sink qualities of timber and other organic materials while net-zero operational carbon will be achieved by utilising 100% renewable green electricity. During the operational phase, the asset may even become energy positive, using bespoke solar, heat pump and battery storage solutions to return surplus energy back to the grid. The project currently awaits building permission and is expected to be completed by end 2024.

Speedboat organisation
Kock joined NREP in 2012, after a brief stint as head of Investments at ATP Real Estate and nine years in M&A with Catella Corporate Finance. Based in Copenhagen, NREP at the time had a staff of 12 which over the past decade has grown tremendously to reach over 600 employees today located in eight countries (Denmark, Finland, Sweden, Norway, Poland, UK, Luxembourg, Germany).

One of Kock’s tasks will be to implement an internal review to provide more independence, responsibility and accountability to local leaders and managers, creating what Kock calls a ‘speedboat organisation’. ’A growth like NREP’s means a lot of organizational gymnastics,’ he noted. ‘We need to streamline the company structure after several years of quick growth and set up specialist teams to unleash the business’ full potential,’ he added.

Another focus point will be the transformation of the company’s real estate portfolio, which currently largely consists of residential (around 50%) logistics, care and office properties in the Nordics. The group, which manages a portfolio of roughly 7 million m2 valued at some €17 bn , plans to double the real estate business by 2026, seeking growth mainly in its current markets in the Nordics as well as in other Northern European countries. Last year NREP made its first move in Poland with the acquisition of a 130,000 m2 logistics portfolio and announced plans to develop 10,000 homes in major cities across the country by 2025. Kock: ‘After taking steps in Poland, we have also opened offices in Frankfurt and Munich, where we have a credit team in place and we are currently setting up a real estate team as well.’

The company expects to make its first investment in the German market in the near future. ‘However,’ Kock pointed out, ‘we are and remain a company focused on Nordics where in fact over 90% of our efforts are directed and where frankly I see the largest growth originating from in the next few years.’

In terms of sectors, logistics will likely play a larger role in the future, as plans are to expand the portfolio aggressively over the coming years. ‘The expansion of our logistics holdings is one of our big focus areas, because we see a lot of opportunities in this sector.’

New fund
Although the group’s portfolio is mostly focused on the Nordics, NREP’s investor base is more global than regional, with major investors including international, institutional investors such as CBRE Investment Management’s Indirect Private Real Estate Team, Novo Holdings, the investment company of The Novo Nordisk Foundation, one of the world’s largest charitable foundations, as well as Dutch pension investor Bouwinvest. The firm manages two main fund vehicles, a multi strategy fund series, known as Nordic Strategies Fund, which has a value-add investment profile and a closed end structure. The group is currently raising Fund n. 5 (NSF V) in the series, which held a first close in January at €1 bn and has since carried out multiple closes and is shaping up to become the largest of the series launched so far. Its predecessor, NSF IV, raised as much as €1.9 bn in 2020, at the time the largest real estate fund in the Nordics.

NREP’s other fund is a ‘perpetual’ investment vehicle known as NIP (Nordic Income+). Launched in 2021, the fund focuses on income generation and has currently reached a size of €2.3 bn GAV after raising a total of €1.6 bn at second close in January this year. Kock: ‘We continue to see strong interest from our investors, which look at the Nordics as a safe place to invest. Investors are attracted by our sustainability focus and our investment strategies particularly in logistics and care homes, which provide a hedge against inflation.’

Things might change in the near future, he added. ‘I do think for the future it will be harder to raise equity because less capital will be available for real estate at a time when other assets in investors’ portfolio are depreciating in value. While the market goes through a major change, I believe it will be even more important to make a change for those investors with the heart in the right place – decide where to invest on the basis of what impact it has on the planet.’


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