Can private real estate make a bigger impact on housing affordability? Share your views.
Today I’ll be speaking at the NeighborWorks Symposium: Investing for Impact in Sustainable Communities and that provides a great opportunity for you to send in questions and thoughts on the topics they are covering.
I’ll add your questions to others I already have and will get the answers from speakers during the day — sharing them back on Twitter or via a blog post about the event later.
NeighborWorks has put together a unique event, with an agenda that sports quite a few sharp teeth.
Starting off with a keynote from Angela Blackwell, Founder and CEO of PolicyLink, the symposium dives deep into several interconnected aspects of housing affordability, with the goal of generating actionable ideas on next steps to improve the impact of investing in housing affordability and sustainable communities.
Symposium topics include:
- the proposition that greater investment in housing organizations is needed to assist the cause of affordability.
- the role of sustainable design in housing affordability.
- a look at our understanding of social returns from affordable housing and how can that knowledge stimulate greater private capital investment in the sector.
I am speaking on the last topic above, as part of a panel moderated by Nancy Andrews, of Low Income Investment Fund. Since we are speaking in an open Q&A format, the specifics of our discussion on social returns will evolve from the input of all the speakers.
Tomorrow, I’ll speak about the tools from Galley Eco Capital’s work that non-profit housing groups can use to better engage private real estate investors on investing in rental housing and sustainable communities.
The graphic for today’s post is the title page of my talk, which will contain a good dose of material on triple bottom line metrics as well as the role of innovation within the discussion.
After the event, I’ll post a short except from the presentation, to continue the conversation on the role of social returns within private real estate investment decision and if it is truly possible improve the way we invest in housing affordability and communities within the US.
Got any questions that you’d like answered on the above topics? If you send them to me, I’ll ask panelists and speakers during the day as time permits.
In any event, I look forward to hearing about your views on the topic.
I can post the answers either on Twitter or on a blog post for everyone later when the conference is over.
Stay tuned!
Deep Horizon oil spill soaks $9 billion in CMBS deals
The first factoids, attaching dollar signs to the Deep Horizon oil-related damage to commercial real estate, are washing ashore.
Realpoint, a rating agency, recently reported (in Real Estate Finance & Investment and Institutional Investor) that the Gulf of Mexico oil spill is affecting “$9 billion in commercial mortgage-backed-securities (CMBS) deals“.
The article notes:
[Realpoint] found that there are about 306 loans on 319 properties on the coasts of Louisiana, Mississippi, Alabama and Florida that are feeling a direct impact from the spill. The agency believes that the biggest threat to cash flow will be reduced tourism, particularly for properties in Florida. About 247 of the properties affected by the spill are in Florida; reports are that it could cost the state about $2.2 billion.
So will those property owners and the CMBS bondholders go marching arm-in-arm to British Petroleum, to file claims for lost income on those properties and/or debt service on those loans? How will they be compensated for the permanent loss of market value on a “marked” property, not to mention loss of access to refinancing for properties that really are or perceived to be oil-damaged?
Those factoids will roll in soon, I’m sure.
So we now have the unhappy visual of real estate investors, pants rolled up to their knees, trudging through the business, legal and insurance swamp surrounding Gulf-region CMBS, added to a somber image of the rest of the industry on its slow march to building-related sustainability.
One thing’s for sure: the proximity of these events takes the option of doing nothing about environmental and social responsibility off the table (finally).
Photo credit: DVIDSHUB / Flickr
How failed US climate legislation hurts commercial property investors
“Absent very unlikely changes in federal law, this task will fall to fifty state legislatures, governors, and utility commissions,”
Yikes.
If you know any nationally-active real estate investor who’s leery of climate legislation, tell them that now - even with climate legislation dead for 2010 - is definitely not the time to relax. Then pass along this story from Monday’s New York Times, laying out how the lack of a unified national climate and energy policy is only expected to make the US’s already feudalistic energy policy patchwork even more complex for building owners. After they read it, give them a Tylenol for their headache.
In a nutshell, US energy policy has always been driven regionally by ideology, state self-interests and political winds of the moment. In former times, readily available, cheap fossil fuel meant that buildings and businesses felt no impact. In current times, fragmented policies can make already costly energy more expensive because it will push the job of coordinating for the highest energy efficiency directly onto the real estate industry.
The Times doesn’t mention any detriment to commercial real estate by name, but you can figure with buildings being responsible for 76% of US electricity use, that these forces can be particularly brutal on a nationally-active investor with assets “in the wrong place at the wrong time”.
Not only does the current retreat from climate legislation point to sharpened regionalist state energy policies, experts fully expect those states with traction on renewables and energy efficiency, to march ahead with various regional carbon cap-and-trade regimes.
So, in addition to managing building efficiency without adequate public support in some regions, investors will have stay abreast of regional cap-and-trade programs that other states do belong to.
Real estate investors are must be vigilant in monitoring regional energy policy developments
Today, with national climate legislation off the table for 2010, the risks associated with the currently fragmented patchwork of energy policies are becoming even more fragmented against a more volatile national and global energy market. Commercial real estate investors need to remain vigilant over the evolution of regional energy policy within the areas where they are active to avoid ‘risk creep’ within their portfolios.
They should not rely on arguments such as “energy is cheap during a recession”, “energy futures are currently flat” or think of energy costs in historic terms. The Times story lays out how US regions have already set on very different paths to manage their energy needs, and the current regulatory, ideological and economic winds can provoke radically different policy responses in the different regions - which can mean differing cash flow results for the investors’ efforts.
Finally. A Green Building Finance Course for Non-Finance Professionals
Now you can pre-order the first ever green real estate finance course for non-finance professionals
A couple of days ago we kicked off the pre-order event for the new self-study version of the Competitive Edge Workshop 1: Communicating the Value of Green Building Using Principles of Real Estate Finance.
The first ever self-study course in green real estate finance for non-finance professionals
This all-in-one compact, dynamic course helps you communicate the value of your green building services to real estate finance and investment professionals. It teaches you how you can present the value of your green building products and services to commercial property owners.
Plenty of in-depth, material to support your learning
- Screencasts of all presentations on DVD
- Course Pack - Study guide accompanying the presentations that provides backup information on presentation topics.
- Green Finance Research & Reference Guide - catalogs the key studies and references in the field.
- Green Finance Glossary - this is the only glossary with the most essential sustainability, real estate finance, investment and energy terms all in one guide. It simply doesn’t exist anywhere else.
- Sample Property Financial Analysis - based on an actual investment as an example of the kinds of financial analysis performed by commercial property investors.
50% price for only a couple more days
Everyone on our newsletter list gets 50% off the course when they pre-order now. So you pay $149.95 now (vs the $299.85 regular price). This special pricing will only last a couple more days. (If you are not on our list and buy the course now, you’ll get the 50% discount and will be automatically signed-up on our list.)
Get Free Bonus Gift
Bonus Gift!
You’ll get Financing Market Transformation, a unique collection of eight articles on the latest thinking and best practices in green real estate finance - donated by the most-respected leaders in the field, so we’re giving it away.
Learn at your own pace
This course gives you the competitive edge — everything you need and nothing you don’t
Buy the course now at:
http://www.galleyecocapital.com/green-building-resources/competitive-edge-green-finance-workshop/
Leslie Christian’s Sharp Focus on Risk and Flawed Asset Allocation
Leslie Christian’s Essay Series:
Originally published in Reimagine Money -
» Social Finance from an Investor’s Perspective
» Getting Serious about Long Term Investing
So many of us in sustainable finance talk about the need to “finance differently”. However, not many are underwriting or, more importantly here, understanding the green finance problem any differently than before.
As Scott Muldavin points out in his recent work, your intended decision drives the content of and the manner in which you underwrite green real estate investments. Underwriting green does not have to be done in any “special” way. Your common, hardworking DCF analysis will do the job just fine.
Many governments and NGO’s understand the green finance “problem” as one of raising awareness and delivery logistics. Make consumers aware that a new behavior (like turning off the lights) will save them money and then pay them a few bucks (as an incentive or rebate) to adopt the desired behavior.
For investors perceive the “problem” as one of risk versus reward. They want to earn an appropriate risk-adjusted return for the sustainable property they are purchasing (or lending on). You get the picture.
We’re all in favor of green real estate, just as long as we don’t have to do (too much of) anything differently.
But does any of this address the real problem, or is it all just surface noise?
“It’s the global economy, stupid…”
I imagine that’s what James Carville might say if he read Leslie Christian’s recent essay series that been published in the Reimagining Money blog, over the past few months.
Instead of providing her take on the next couple of short term moves, Christian introduces the idea that we’re all playing the wrong game entirely.
She asks us to consider whether current day approaches are driven by basically faulty assumptions. Her point: limits on ecological resources mean that there are limits to economic growth. Ignoring the role that ecological limits play within our global economy opens us up to other risks (negative and positive) the financial community has never thought about. Risks that are already playing out every day throughout our markets and the world.
Rather than trying to measure the riskiness of a particular asset within the framework of a growth economy that looks a lot like the past century but with more players, perhaps we need to consider the riskiness of the global growth economy itself.
In her first essay, she lays out why “global growth thinking,” as reflected by Modern Portfolio Theory (MPT) and pretty much all of modern finance, is no longer a workable framework (if it ever was). The unquestioned expectation of perpetual growth leads many to analyze a particular asset or risk within a perpetually growing global economy. But they never question if the global growth economy itself is a problem.
Christian does — challenging MPT, then proposing a new risk framework for the 21st century, which positions social investing as a risk mitigant. And all that happens in just the first act.
In the two subsequent essays, she takes it to the next level. By the third essay, she calls you out, naming ostriches and other non-responsive market participants in denial.
The issues she raises are getting attention in financial circles. Pacesetter Vince Siciliano, CEO of New Resource Bank, commented on the second essay:
I welcome the discussion on limits to growth and the very real impact it should have on our lifestyle and investing decisions today. When we define the word “sustainability” we express a concern about future generations without acknowledging the inherent paradox of everyone around the world trying to live an lifestyle. The blunt question is whether we are willing to freeze (or shrink) our current standard of living to make room for others both now and in the future.
On the other hand, Leslie states that we crossed the tipping point on global resource use in the mid-1960s; I wonder how we prove that fact? The use of cradle to cradle thinking and sustainable technologies will enable us collectively to live much better on a global basis and that needs to be figured into the overall calculus.
Are we protecting ourselves with an umbrella in a hurricane?
Vince points out the need for more proof on the connection between ecological and economic limits. Actually, while I think the need for proof is prudent, it is quite plausible that Christian is at least half right. And that spells big trouble because modern finance can’t even address a part of the risks that she point to. So even if she’s partly wrong, there’s still a need for sustainable finance to redefine “financing and underwriting differently”.
So if you thought that any of Christian’s writing could be true, what would you do differently?
If you even partly accept the notion of ecological limits to growth that make the entire global economy riskier than we know:
- how much have you reduced your ‘risk’ by financing and investing in green real estate?
- what is the cost of waiting to implement your strategy?
- how much benefit will you gain by focusing only on “low hanging fruit” during your energy efficiency retrofit?
- are energy efficiency finance programs, such as PACE, really effective or are they too little too late?
Or do you think, as Vince Siciliano comments, that some of today’s new sustainability thinking — like cradle to cradle — can play such a significant role that you’ll be able to to avert the horrible future Christian suggests is waiting not only for the status quo but current day green investing, too?
Take a look at Leslie Christian’s essays, risk framework and recommendations.
Think about some of the markets where you currently seek investments. Think about your underwriting. Your network and clients. See any signs of ecological limits taking shape?
We do.
If you work with institutional investors, send the essays along and ask them what they think.
Then, share your experience and their reactions with the rest of us. We’d love to know if and how these ideas cause your conversations and more importantly, your investing, to differ.
Access all three of the essays here:
» Social Finance from an Investor’s Perspective
