LIIF green fund launches and Bond Co’s gets pulled

 

Two green funds have made the news recently, due to movements in opposite directions.

The Low Income Investment Fund announced a $50 million green community fund, to fund green buildings in underserved communities over the next three years. Per their press info, the funds will be used to invest in LEED certified building development, transit oriented development (TOD) projects and greener child care centers in underserved communities across California and the New York area.

The Bond Companies and Abraham Group, on the other hand, seemed to have pulled the plug on their planned $350 million fund, which would have targeted green real estate opportunities. This comes per Real Estate Alert (no link, subscription based only).

The fund originally focused on developing and redeveloping urban market properties, but switched gears to repositioning existing buildings when the market downturn worsened. With a return goal of 13.5%, it is fair to say that equity return expectations have shifted significantly upwards since the fund was announced. That, plus the overall investor pullback from real estate could make it tough to achieve the original fund-raising targets.

In our view, this shouldn’t be seen as any negative comment against green funds generally.  The shift in real estate valuation and the capital markets downturn have stalled any vehicle that is development and/or sub-20% targeted return.

Expect to see a similar fate hit other green funds announced over the past 24 months. It’s all part of the economy and current real estate cycle.

The upside (if you can call it that) can be seen in green funds, which are announced right about now: the market is widely expected to be at or near bottom by mid-2010, and so those vehicles will be in a better position to purchase real estate more cheaply and, other factors being acceptable, generate the kinds of returns investors expect. Having said that, it is our view that it will be quite a while before new development  returns to the forefront of anyone’s focus.

And that, of course, keeps things very interesting for the retrofitting of existing buildings.