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Real Assets Managers Step Up Investments in EV Charging Deals

Managers are adding electric vehicle charging stations to properties from both infrastructure and real estate funds, but the capital source depends on the opportunity.

More real assets managers are creatively looking at ways to add electric vehicle, or EV, charging stations at properties, including some that are tapping into federal government programs and funding.

And general partners, or GPs, looking to invest in EV charging technology are drawing capital from both real estate and infrastructure funds, though the capital sources differ depending on the focus of each deal.

“Historically, it has been the real estate owners that are investing in this, but there are more funds out there to help offset some of the costs that support the infrastructure,” said Crystal Sunbury, a senior real estate analyst at RSM.

Real estate owners often bear the “responsibility” to add EV charging technology to an individual property, she noted. However, some infrastructure funds are investing in wider EV charging station deals that take advantage of rebates and tax credits, such as the Alternative Fuel Vehicle Refueling Property Credit, which provides a tax break for up to 30% of the cost of equipment and installation, she said.

Vision Ridge Partners, Keyframe Capital and Cyrus Capital, for instance, have invested millions to develop more charging centers through TeraWatt Infrastructure, which raised $1 billion for the effort in September, a news release stated.

Whether or not an EV charging station is supported by capital from infrastructure or real estate funds depends on the structure of the opportunity and transaction, said Irene Mavroyannis, managing partner leading the infrastructure team at Sera Global Advisory.

An infrastructure fund provided the capital for a concession to supply, build and operate public charging stations in the city of Paris several years ago, with the deal resembling a longer-term lease with cash flows, Mavroyannis noted.

“If the charging network is consistent with that type of investment profile, it’s more likely than not to be funded by an infrastructure investor versus a real estate investor. But there is definitely [an] intersection,” she said.

Real estate funds are more likely to contribute capital to projects led by developers installing EV charging stations at commercial properties as an amenity or to foster sustainability, Mavroyannis explained.

The type of investment also varies based on geography, with some regions fostering multisite deals and others favoring individual installations, she said.

“Europe has more of these concessions, similar to what Paris has. [The] United States, we don’t have a lot of these kinds of public-private partnerships and so there are more private operators that need to intercede and really provide the necessary capital to create these charging stations,” Mavroyannis said.

Some managers will invest from different real assets capital pools based on such considerations. Wafra Inc. is considering EV charging investments and has the capacity to deploy capital from both types of funds. The manager is still researching different platforms but sees plenty of growth prospects in EV charging.

While the choice isn’t “necessarily black and white,” where the investment comes from really depends on whether Wafra will own land where the stations are, said Pratik Patel, a managing director at the company.

Wafra is looking at opportunities to integrate charging stations across all of its real estate verticals, but has identified some risks, according to Patel. Those include the availability of power at particular sites, the associated costs, and the differing connectivity across a variety of cars.

And EV technology today doesn’t always translate into profits, Mavroyannis pointed out.

“What we’ve heard is, there’s somewhat of a challenge in rolling out EVs because the revenue model for the EV charging station hasn’t necessarily been established,” she said. “If you don’t have a concession and you’re trying to create EV charging stations around the nation, but don’t have a business model that yet makes sense because you have to roll it out in scale… then there is less eagerness to invest in the electric vehicle charging stations themselves, versus say the software.”

Still, such variables aren’t deterring Wafra from further exploring the investment, because while it isn’t widespread today, it can be in the near future, Patel said.

“We are taking a long-term view on this project. I do believe that in five or 10 years, there’s a good chance that it becomes a norm and is part of the valuation exercise. So, we want to get ahead of that,” he explained.

Investment in EV charging stations “really comes down to staying competitive,” Sunbury said.

Managers won’t see returns quickly given it is a long-term asset, but as more and more electric cars get on the road, real estate properties will have to be equipped with EV ports to accommodate tenants and visitors, she explained.

A further driver for EV deals is coming from the federal government after U.S. President Joe Biden issued an executive order over the summer, setting a goal for electric cars to make up 50% of all vehicles sold in the United States by 2030. In addition, the bipartisan infrastructure law earmarked roughly $7.5 billion to construct a national EV charging network.

“That has kind of lit the fire,” Sunbury emphasized.

Reproduced with permission from FundFire.