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!
Bioregionalism & Green Finance: “It’s the (sustainable) economy, stupid”
At least, that’s what Luke Lowings seems to be saying, in his review of Pooran Dersai’s new book, One Planet Communities. And he’s not making a bad point. It’s time that a solid discussion of finance accompany visionary development.
Dersai’s new book espouses “practical bioregionalism” — focusing on architectural principles for building a whole community — as opposed to just the sustainability of individual buildings. He argues for applying principles of bioregionalism to create sustainable communities (definition of bioregionalism here).
Lowings’ main complaint about One Planet Communities is that its heavy focus on building sustainable communities ignores the parallel task of creating a sustainable economy to support them. My brow furrowed as I realized that, if this was Lowings’ chief complaint, then he’s probably very depressed about everything he reads on sustainable buildings. To date, not many have been able to lay out a cohesive set of principles and practice for the kind of finance that truly supports sustainable communities at a regional level. So I feel Lowings’ unfairly picks on Dersai about a general problem in the market, not for any particular failing on Dersai’s part.
Financial Infrastructure Needs to Support Sustainable Communities
Nonetheless, Lowings still has a good point –> the current availability of financial tools and resources for green real estate developers and investors is more of a swap meet than a market. It does not offer the depth and breadth of organized infrastructure that bioregions can rely upon.
- Recently, there have been a glut of new studies and tools dealing with narrowly defined pieces of individual building-related financial problems — green lease clauses, detailing paybacks on specific retrofit measures, and the potential value-add of third party certification to individual green buildings.
- On the funding side, the owner’s discovery and selection process requires trudging through a a swamp of new incentives, stimulus funding plus the byzantine tax and regulatory requirements that accompany them. To come up with a green business case on their own, they have to hopscotch around, stitching together those new green funding sources with their traditional capital relationships. Repeat that whole process again, for every single building they intend to green.
- It’s no wonder that nearly 70% of the participants who attended one of our recent webinars, indicated that they were not applying for or using any sort of incentives whatsoever. Why not? Too confusing to figure out!
The final wrinkle relates back to our post last week on green building valuation. In order for finance to support sustainable communities, the investment real estate community will have to be able to assign a value to amenities such as community farms and more schools. There would have to be a cultural shift towards more long-term economic stability as opposed to above-inflation rental growth. From today’s standpoint, that is a very tall order.
Bioregions don’t fit neatly into industry accepted conventions of primary and secondary real estate markets. Real estate fundamentals are driven by global and national market forces, not just regional ones. Capital markets these days cannot exist exclusively within a fenced-off business territory.
So I think that the sustainability movement has to acknowledge a certain level of hype that is accompanying the bioregion vision and incorporate a sober view of global demographics and economics in their economic planning.
Case Study: The Preserve - an official candidate “One Planet Community”
Can bioregionalism completely address some of the ills we see within our communities? Hmmm…. maybe.
GlobeSt.com has put out the word on A.G. Spanos’ announcement of a $2 billion “environmentally and economically sustainable” community that will generate 12,000 jobs and over $15 million in annual revenue for Stockton, CA”.
This community, called ‘The Preserve’, is also endorsed under review for endorsement by the One Planet Community, which gave is considering the endorsement in exchange for the development subscribing to its ten principles that address public transit, economics,natural habitats, energy and water, jobs, education and well being.
Two things come to mind as I read this announcement:
#1: Stockton, California has a foreclosure rate of 15% vs California’s 9.5% and the US rate of 6.72%.
# 2: The Stockton, CA metropolitan statistical area posts unemployment of 15.5%. It is ranked 359 out of the total 372 MSA’s tracked by the Bureau of Labor Statistics.
Which leads to my main question:
Can installing a bioregion heal an ailing city?
Seriously. With stats like those above, can the City of Stockton truly afford to support a brand new 1,800 acre community — whose tax benefits won’t be fully evident for many years to come?
My long career of lending other people’s money into many MSA’s has taught me to be cautious when I hear about multi-billion-dollar new developments going into distressed communities — green or not. The US real estate industry is littered with tales of failed revitalization efforts tied to grand master-planned schemes, which absorbed huge amounts of a suffering town’s resources, but actually took a very long time to return relatively little to the residents who needed the relief.
The complete terms of the Preserve development are not yet known, so the jury’s out on the ways in which Stockton will be impacted. But real estate financing history suggests that these kinds of deals only make sense to the developer if they are getting the land at a very low price (or for free) and the city is contributing advantageous financing terms (big infrastructure bonds, etc).
The city hopes for larger tax revenues from the new businesses and residents in years to come after everything is built. Any rewards for the residents won’t be evident for years — after all, houses don’t make long-term jobs. It works the other way around.
Lots of cities forget that. They also forget that, in 15-20 years when the promised development is fully operational, the real estate cycle will be in a much different place than when they signed the deal.
Bioregionalism principles can certainly play a key role in stabilizing Stockton’s economic outlook, but I bet that the City of Stockton could probably accelerate healing of its distress with a large scale, pragmatic energy efficiency financing program for its existing building stock as well as existing businesses to reduce cost of operations, spur green collar jobs and prevent further bleeding of existing jobs. Stockton appears to have a deal in the works with utility, PG&E, but I’m talking about a bigger, farther reaching kind of program which would encompass other forms of green finance beyond that supplied by the public utility.
Long-term healthy jobs and an educated workforce are the DNA of every healthy real estate market — not to mention, sustainable communities. With all due respect to The Preserve, I don’t think that every city needs to necessarily go through the long, expensive process of building big new green communities to get there. And I always have lots of questions when ailing cities start agreeing to these projects, since they are usually in the worst position to really reap the benefits.
The good news is that, “swap meet” aside, there are great green finance options available that, when properly structured, can support cities like Stockton to implement either energy efficiency, new green development, or both. The key is to focus on these options very early in the process and, as Luke Lowings suggested, to make sure that sustainable finance doesn’t take a back seat to sustainable community building.
* * *
Things you might want to know:
- We’d love to hear your comments and suggestions.
- You can get Our Green Journey by email.
- You can contact Galley Eco Capital to discuss or initiate a project here.
- Sometimes you can see what we’re doing on Twitter.
- Photo credit: Stockton, CA Boom Town by Joguldi (Flickr).
Jean’s Question: Anybody Actually Getting Carbon Credits for Green Buildings?
Gotta love the creative local church marketing campaign! Photo credit: Mykl Roventine
In any situation, you always wanna hang with the folks that ask the tough questions — they’re usually closer to the real answers. Like Green Journey reader Jean Shia, of Avant Housing, a CalPERS fund based here in San Francisco.
She asks,
“We are interested to see if anyone has been able to figure out a way to get carbon credits on their green buildings. Is there anyone pioneering this area?”
Fascinating! We were pretty sure that lots of people would be curious about this one. And a big thanks to my colleague, George Vavaroutsos, for putting in some research time, talking with a several carbon traders to get the real story on what’s happening. Here’s the deal:
You’ve Missed Nothing So Far, And Now’s the Time to Stay Alert
Turn’s out that there is limited information in the marketplace about sustainable real estate and the carbon markets. No wonder, since there are significant challenges to property owners and developers who want to receive credits for greenhouse gas (GHG) reductions. Carbon trading experts we spoke with cannot identify a single sustainable real estate project in the US that received credits for GHG reductions.
So what’s the holdup? There are a few issues:
Measuring and Verifying GHG reductions: Measuring reductions, and the ownership of these reductions, is one of the biggest challenges. Quantification is an involved and difficult task, and there is no guarantee that auditors will accept reductions. In addition to verification being prohibitively expensive, current methodologies and standards for measuring GHG reductions do not cater to real estate.
If a developer wants GHG credits for sourcing, production, and transport related GHG reductions, it may be a challenge to quantify and satisfy ownership requirements for these reductions. Additionally, the GHG reductions may not be enough to justify the cost of verification. Note: Talk directly to a third party verifier about your GHG reduction objectives. Here is a link to the California Climate Action Registry Verifiers list.
The “Additionality” Clause: Another major limitation to developers is the “additionality” clause, which requires that in order to receive GHG credits, a carbon-reducing measure would not be implemented if not for the credits that would fund such a measure.
Therefore, if you have a project that will reduce your property’s energy usage, but you will recapture your additional capital outlay with increased operating efficiency over X years and improve your ROI, then the project will not pass the additionality test, and you will not receive the credits. Yep, its pretty technical, we know.
Future Legislation: A US cap and trade system is considered likely by the carbon trading market. I posted a couple of days ago about California already forging ahead. Buyers of GHG credits will not consider many voluntary emission reduction (VER) credits, given the uncertainty created by these expectations. Experts do not expect a sustainable real estate GHG credit mechanism to develop until after a national cap and trade mechanism is implemented.
Industry Pacesetters on the Carbon Trading Front
There are several developers who are pioneering in the field of GHG reductions and credits. ProLogis and Liberty Property Trust, both REITS, are registered entities on the Chicago Climate Exchange, a voluntary cap and trade market.
Both REITS are working to create ownership over the GHG reduction credits their properties are helping to create. ProLogis leases rooftop space on some of their industrial properties in California to Southern California Edison. This renewable power helps satisfy the renewable energy credits (REC) requirements for California utility providers. This arrangement is creating GHG credits, but they are accruing to the power company, not ProLogis.
Stay tuned for more updates — as I’ve already posted, we’re expecting lots to happen on the cap-and-trade front!
Housing Developers: Preparing for Opportunities During the Downturn?
So I heard Bob Gardner, of RCLCO, give a presentation about the state of the multifamily market and trends at the ULI Multifamily Trends conference today. Turnout was good, albeit with a somewhat subdued mood overall.
One of my friends summed it up this way, ” there’s a lot of folks in this room who are hurtin’ right now”. The more positive statements by the groups who reported that their business and portfolios were still performing well went something like, “we’re building out product that we’ve committed to; beyond that we’re staying on the sidelines”.
All that being said, a couple of mezz guys said that they were getting steady calls to assist with recapitalizations that couldn’t be accomplished through the senior debt channels.
The Sunny Side of the Housing Downturn
The bright side offered by Bob and several of the other speakers was that many real estate fortunes have been made during a downturn. Bob’s example: low land prices in the early 1990’s set up master developers for many years thereafter. Hmm… good point; so I started taking notes.
He pointed to Gen Y as one of the largest opportunities out there right now and that real estate developers and investors would be wise to study up on this group and prepare for the significant impact they might have on how and where real estate will be built in the very near future.
Basic Gen Y 101–> Here is a presentation that will give you the GenY download.
Here are a few notes on Gen Y’s demographic characteristics, which strongly favor green and sustainable real estate investing:
- This group of consumers is willing to pay for walkability and transit. They really value their time, so they are not big on paying for a big house and commuting. These types of issues receive great attention when siting sustainable investments.
- They are very into working from home. Having an office in a corporation is not as much of a big deal for them. (Cuts into their “me-time”.) This also seems to add support to the low carbon information, communications and technology opportunities, talked about in my telecommuting post yesterday.
- They start becoming homebuyers in 2012 (!!). The green angle here is the “other green”. (Excuse the pun, I couldn’t resist)
Yesterday I wondered aloud about whether developers would start creating more live/work units that cater to home workers and families all in one. If so, make sure they’re sited in a walkable, transit-oriented location.
Based on what I learned today about Gen Y, it appears that this type of product is not some far off fantasy, but could present a mid-term opportunity. In any event, an economic downturn is a good time to study the opportunity and spend time positioning your firm to deal with this emerging demographic trend.
Gadgets & Video: Energy Neutral Green Affordable Housing
So while the rest of the known universe makes their new iPhone plans, I’m headed for a Flip Video Ultra Camcorder. And I’ve discovered that green videos on YouTube are the best way to cultivate a new camcorder obsession. But enough about me…
This video’s been out for a few weeks, but highlights a good area of focus since the Multihousing Trends and PCBC 2008 are rollin’ into town next week.
Institutional investors and lenders often think of affordable housing as a niche — “Oh its just a big tax credit play”, they sniff. What many of these folks overlook is that some of the most clever and effective financial innovations within real estate actually originate from lenders and investors who are active in the affordable housing and community lending sectors.
It is amazing to me that so many of us in finance and investment think that the wheel has to be re-invented to finance green. No — you might not take on all community finance ideas 1:1, but this is an area where professionals have already been forced to get creative about delivering capital to obtain specific social purposes. Now its good that they can add positive environmental outcomes to their list as well.
Green Journey Tip:
And in case you need to step up your download on green affordable housing, by all means subscribe to KnowledgePlex Week In Review. Then sit back and prepare yourself for maximum affordable housing news satiation.
