Global real estate development, a field that has always been intricate, has witnessed an even greater level of complexity in recent years. The concept of "building green," which was once a choice and a differentiator for developers, is now increasingly the only viable path to meet new regulations, consumer preferences, and investor expectations. New technologies, many of which are powered by recent advancements in AI and generative AI (gen AI), present significant opportunities but also demand in-depth knowledge.

Unlock the Potential of Unconventional Real Estate Partnerships

Section 1: The Changing Landscape of Global Real Estate

In recent times, global real estate development has undergone a significant transformation. Building green, which was once a niche concept, has now become a necessity. New regulations, evolving consumer preferences, and the expectations of investors have all contributed to this shift. For instance, a study conducted by McKinsey revealed that nearly three-quarters of large global real estate companies' chief investment officers identified high interest rates as a major challenge. Fluctuations in costs and supply chain issues also pose significant problems. These difficulties have led real estate developers to explore broader and deeper partnerships.In 2022, approximately 30% of real estate partnerships involved alliances, joint ventures (JVs), and mergers and acquisitions (M&A) with noncore industry partners such as hospitality or environmental services. This is a significant increase from around 20% in 2013. Developers are realizing that they need to integrate sophisticated technology, including machine learning, and provide a high standard of customer experience. Deeper partnerships with diverse companies and industries can help them achieve these goals.

Section 2: Unconventional Partnerships in Real Estate

Unconventional partnerships in real estate are innovative and nontraditional collaborations that go beyond the traditional developer-contractor relationship. Instead of simply hiring a service provider or buying products, developers enter into more sophisticated cooperation mechanisms such as alliances, JVs, and acquisitions. These partnerships enable cross-industry collaboration and vertical and horizontal integration.For example, a megacity formed a JV with a sustainable waste management company. This partnership helped the megacity access tailored solutions, enhance its sustainability reputation, and overcome supply chain problems. Another case is a European developer's JV with a clean-energy producer. This collaboration enabled the developer to increase renewable energy production by more than 200% over two years and attract sustainability-conscious investors.Unconventional partnerships offer several benefits. They allow developers to invest in new technologies and solutions, attract a wider pool of investors, and gain capabilities and expertise that expand the traditional definition of what a developer does.

Section 3: Case Studies of Unconventional Partnerships

A European developer announced a JV with a clean-energy producer to expand solar-power production on its properties. By doing so, the developer was able to produce approximately ten million kilowatt-hours (kWh) of electricity per year and save roughly four million metric tons of CO2 equivalent. This was more cost-effective than seeking to produce clean energy independently through contracted suppliers.A megaproject invested in an automotive start-up and formed a JV. This allowed the developer to build in-house capabilities and access new revenue streams. It also had a positive impact on the local economy by creating jobs locally instead of in another country.A North African megacity developer formed a JV with a sustainable waste management company. This partnership helped the megacity achieve an 80% landfill waste diversion rate and gain a competitive advantage in securing materials and services during supply chain problems. It also enhanced the developer's reputation and attracted sustainability-conscious investors.A North American real estate developer invested in an equity alliance with a security tech start-up. This partnership enabled the developer to customize the start-up's software and gain a competitive edge in security innovation. It also helped develop in-house capabilities and attract a new class of investors.

Section 4: Steps to Successful Unconventional Real Estate Partnerships

Conduct Specialized Due Diligence: Unconventional partnerships involve new business models and unfamiliar risks. It is crucial to conduct a tech infrastructure assessment, evaluate cybersecurity protocols, and conduct IP rights audits to ensure the partnership's success.Determine the Partnership Type: Real estate developers need to select the appropriate deal type based on their strategic directions and risk appetite. Acquisitions, JVs, and strategic alliances are the most common mechanisms.Define, Review, and Adapt Shared Objectives: Clear and aligned objectives are essential in unconventional partnerships. As AI and gen AI become more powerful, developers need to seek out partners to rewire their companies for the digital era. Well-defined goals based on common objectives and values are crucial.Develop a Strong Governance Model: Effective governance is crucial to the success and longevity of partnerships. This includes establishing a management team, recognizing and bridging cultural differences, and managing risks.Establish Performance Metrics and Exit Strategies: Partnership agreements should include performance metrics to assess progress and exit strategies in case of dissolution. Planning for leadership succession is also important.Unconventional partnerships can help real estate developers build capabilities and expertise in areas such as sustainability and technology. They can also help pursue near-term goals and evolve into future-proof developers.