Interview: Johnnie Wilkinson, Greenman Group
Johnnie Wilkinson, chief executive of Greenman Group, talks to Sustain about the investment manager’s programme of onsite power generation and diversification.
Greenman’s OPEN fund is the largest owner of food-focused real estate in Germany, with €1.09 billion of gross assets, and is targeting Net Zero by 2050. Generating onsite power through solar PV will be part of this and Greenman is also seeking to cut food miles by investing in vertical farming. These new business lines will also provide diversification of income; Greenman is targeting 5% of income from non-rental sources by 2025.
The motivation for this diversification has been the changing relationship between landlord and tenant, says Wilkinson. “The idea that a landlord buys a property and has this passive income for a significant period of time, has really changed. The landlord, and ESG is one driver of this, is obliged to take a much more operational approach to the building and become closer to the tenant,” he says.
“I really believe that in years to come, rent will be a small proportion of the revenue a landlord collects from that tenant. Ancillary services such as energy will end up being a more significant part of the total.”
Supermarkets are well suited to solar PV installation, because they are single storey buildings with a big roof space. “And secondly the energy consumption by grocers is huge, because of the cold storage,” says Wilkinson. “In an inefficient building, the energy consumption is getting on for 600 kilowatt hours per square metre per year.”
Rooftop solar PV can generate about half of that – in theory. In practice, supermarkets need power when solar is not generating and might not need what is being generated sometimes, for example on a sunny Sunday afternoon. Wilkinson says: “A challenge for us is to work with tenants to understand how they can maximise onsite power use. Moving heating from gas to air source heat pumps is a major win, especially for older buildings. In a best-case scenario, the stores can use 80% of what is generated onsite.”
The next stage is to alleviate heat loss from fridges and freezers, which can be as much as 70 kilowatt hours per square metre per year. Wilkinson believes the long-term solution will be for the landlord to provide energy-efficient cold storage as part of the lease contract.
There is also a challenge in asking tenants to renegotiate their energy contracts, which are typically signed with a single power company for a large portfolio of stores. “Entering into energy contracts with us as opposed to a single agreement is operationally more of a hassle for them, but they see it as a winning point because it is a good story for their customers and they have their own ESG requirements,” says Wilkinson.
Car parks are an obvious location for solar PV and there is German legislation demanding it, which has been largely ignored. “The problem is that tenants do not like anything which obscures view of their stores and branding from the road and street level.,” says Wilkinson. “Nonetheless we are working on it and plan to have 80% of our car parks covered by 2042.”
Battery storage forms part of the plan to maximise onsite power use, however the problem with this is large batteries of the type needed cannot hold power for long, certainly not long enough to run fridges and freezers overnight. In order to use more power onsite, Greenman is installing EV chargers which work well with battery storage. “The more energy we use on site, the better. If we sell it to the grid, we get seven cents per kilowatt, but we get twice that from the tenant,” says Wilkinson.
He predicts that the intersection of real estate and energy will become more and more important. “There is going to be a very big business around owning the ability to generate renewable energy in real estate.”
Cutting food miles with vertical farming
Vertical farming has been touted as a solution to the conundrum of consumer desire for fresh produce all year round and the need to reduce food miles. It has proven a difficult and expensive business thus far, however structural trends in urbanisation, population growth and a growing middle class in developing nations support its long-term potential.
Greenman has a vertical farming subsidiary, Potager Farms, and will develop the concept at a number of its stores. “We are working with a few tenants to see what we can do to grow locally out of season and help with their Scope 3 emissions,” says Wilkinson.
He believes the real future of vertical farming could be somewhere different, however. “In the long term, where it's really going to be successful, is not at the grocery store, where we're trialling it at the moment, it's going to be in the distribution centres. You can grow incredible amounts of vegetables in a relatively small area, more than one tenant can sell in a day. Whereas if we were to place a vertical farm inside the distribution warehouse, where their lorries are distributing to 10- 20 different stores in a day. That's where scale meets demand.”
As part of its Net Zero journey, Greenman has pledged, wherever possible, not to demolish any of its buildings, instead: “We will repurpose them. So vertical farming might take up first floor units that will never be rented to a retailer. Or an area of car parking that's not required.”
The final part of Greenman’s sustainability plan is to invest in food-linked social projects, which will meet the coming commitments for Greenman OPEN, which is set to convert to become an Article 9 fund. Wilkinson says: “We in the process of converting our open-ended fund into an Article Nine fund, so we will commit to social activities and enabling activities education on solar, food and nutrition. We are going to commit about 0.5% of NAV per year to these initiatives, which doesn't sound much, but the NAV is more than €700 million, so we can do something material.”