Use these metrics to measure your portfolio’s triple bottom line performance

Get this new research on metrics that helps you measure property triple bottom line performance.

We are pleased to share a new report titled, Metrics for Responsible Property Investing: Developing and Maintaining a High-Performance Portfolio.

You can download the report here.

This research was co-authored by Jean Rogers of Arup, David Wood of the Responsible Property Investing Center and myself. This is a working draft for comment that was presented today (4 November 2009) to a joint session of ULI’s Responsible Property Investing and Sustainable Development Councils.

Why do we need metrics for triple bottom line investing?

Our survey of the industry indicated that the spread of triple bottom line investing was being hampered by the fact that most currently available real estate sustainability reporting came from investors who would green a couple of showcase buildings in their portfolios.  This lack of transparency leaves the broader real estate industry and capital markets with several pressing problems:

• They cannot determine if sustainability performance on the portfolio is improving over time.
• They do not know how the portfolio’s green performance compares with the portfolio’s of other investors.
• There is no way to judge sustainability risks hidden within any portfolio.

Drafting and road-testing proposed metrics with the Bay Area Council and TIAA-CREF

After developing a set of metrics that would represent the ten RPI principles in action, we worked with the Bay Area Council Family of Funds and TIAA-CREF to road test them, to obtain real world feedback from actual investor users.

Bay Area Council Family of Funds tested the metrics on recent acquisitions to see how the metrics might be useful during the property acquisition process.

TIAA-CREF tested the metrics on a portfolio of properties they own, to determine how the metrics could possibly assist them with asset management activities.

Both investors were also at today’s ULI session and provided in depth comments on the use of the metrics and their recommendations.

Key takeaways

Here are a few of our findings based upon investor feedback about their use of the metrics:

• RPI metrics do provide a tangible link to asset and portfolio value by pointing to possible decreases in operating expenses and/or increases in rental revenue.
• The use of RPI metrics can assist with opportunity finding: a key objective of due diligence during  acquisition.
• The use of RPI metrics can help drive social responsibility within the portfolio, instead of just monitoring it after the fact.

We need your help!

This report is currently a working draft for comment. It was submitted to members of the Sustainable Development and Responsible Property Investing Councils for their review and comment. We would also appreciate hearing the comments and questions of real estate investors and practitioners within the Green Journey community.

Let us know your thoughts about these proposed metrics. Also feel free to forward this report to anyone in your network whose practice might benefit from the information.

We look forward to hearing from you and will keep you updated on this effort as it evolves.

You can download the report here.

Related reading:

• We’ve covered the emergence of responsible property investing many times before.
• You can also view a short presentation on the basics of responsible property investing here.

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TIAA-CREF Reports Portfolio Energy Reduction

Industry pacesetter TIAA-CREF announced that it has reduced the energy usage of its portfolio by 3.6%.

Those of you who follow this blog and our conferences know that TIAA-CREF is more outspoken than many institutional investors about its efforts to integrate sustainability, triple bottom line approaches and energy efficiency within its real estate portfolio.

While 3.6 percent seems modest, bear in mind that was achieved across a 43 million square feet office portfolio. The big goal is to reach a 10 percent reduction by 2010. Next to that, TIAA-CREF is still analyzing its 12,000 unit multifamily portfolio, looking for approaches to bring down energy usage there.

The main point here is, considering US institutional real estate investments consist of roughly $2 trilion of a nearly $5 trillion national market (per National Association of Realtors), consider this investor’s reporting as both the tip of the energy efficiency/sustainability iceberg and a powerful signal to its peers.

Look for more pension funds and similar investor types to join the bandwagon and start publishing more transparent facts on the results of their sustainability efforts.

Related posts:

Benchmarking Anchors Energy Efficiency Retrofit Finance…and Returns

Green Building Drives Triple Bottom Line Advantages

Benchmarking Anchors Energy Efficiency Retrofit Finance…and Returns

For us, 2009 is already shaping up to be “The Year of Energy Efficiency Retrofits”. Constrained credit markets mean that growing organic cash flow within the existing building portfolio is a real estate investor’s top priority.

So we now spend more time with owners applying an integrated finance approach that structures the right deployment of capital to pay for retrofits while creating the best combination of environmental and economic returns.

Great green finance for existing buildings actually begins with a solid benchmarking process, in order to establish where the opportunities for energy, water and operational improvement exist within the portfolio. This is necessary since operating cost reductions can be a key source of repayment for retrofit costs.

Benchmark Like a Pro

So what critical areas you should be looking at when thinking about your company’s own benchmarking practices?  We have our own experience, and also want to share recent comments from Nick Stolatis, of industry pacesetter TIAA-CREF, that really bring the message home. Nick dispensed hard-won benchmarking wisdom at a forum we sponsored last fall, experience gained while benchmarking their 200 building, 44 million square foot existing office portfolio:

1. Tap the experts. The knowledge and guidance of benchmarking experts will help you avoid potential pitfalls. The first time that TIAA-CREF benchmarked their portfolio performance via the Energy Star Portfolio Manager tool, they realized that more than 50% of their properties were not being benchmarked correctly, if at all. This cost them valuable time and money. With the help of third party consultants, they re-launched their benchmarking efforts. The consulting team, which had developed the Portfolio Manager tool, helped TIAA-CREF establish reporting protocols and additional tools to identify under-performing assets. The re-launched effort resulted in 100% program implementation.
2. Benchmarking is forever. Your asset managers and property managers (and all of their staff) need to understand that benchmarking is an ongoing weekly (if not daily) activity. As a portfolio manager, you need to make sure that they have the right tools and knowledge to consistently and accurately track building performance data.
3. Training is crucial. All asset managers and property management staff need to have adequate training in performing benchmarking tasks. TIAA-CREF, with the help and guidance of their consultants, set up a complete training program for staff, featuring periodic webinar tutorials.
4. Establish expectations. In addition to adequate training, staff needs to understand that these activities are a requirement of their position, not an optional task.
5. Don’t overlook the low-hanging fruit. Benchmarking can take months, even years, to provide an accurate picture of your portfolio’s energy and water performance. In the meantime, there are a number of low-cost/no-cost measures that can be implemented across all property types. For TIAA-CREF, replacing any existing T-12 bulbs with T-8 (only high efficiency) or T-5 bulbs was an easy way to reduce energy use by 30% per bulb, at no additional cost.

Learn About Benchmarking and more from Energy Efficiency Retrofit Specialists

Finally, if you are working to retrofit your existing portfolio, you should attend the Financing Energy Efficiency Retrofits workshop at the upcoming Green Building Finance and Investment Forum – West. During this workshop, top industry leaders will be presenting the newest best practices on financing mechanisms, case studies of successful building retrofits, the nuts and bolts of LEED-EBOM certification and new regulatory initiatives that make sharing building energy information more transparent. Here is the link to the agenda and registration information.

If you liked this post, please subscribe to Our Green Journey to get regular updates on developments within green real estate finance and investment, including energy efficiency finance. As always, your comments are welcome!

Part 5: Green Building Drives Triple Bottom Line Advantages

How do you achieve environmental and social progress within your real estate investment platform while delivering market rates of returns?

In Part 5 of our Special Series on the Green Building Finance & Investment Forum – New York, co-sponsored by Galley Eco Capital, triple bottom line investors discuss how and why their environmental and socially-driven investment vehicles meet and sometimes exceed market rates of return, and their investor’s expectations.

The panel consisted of Lisa Lafave of HOOPP (Hospitals of Ontario Pension Plan), Brandon Mitchell of Full Spectrum NY, Nicholas Stolatis of TIAA-CREF Global Real Estate, and Stephanie Wiggins of the AFL-CIO Housing Investment Trust. The panel was moderated by Lisa Hagerman, Ph.D., of the Institute for Responsible Investment at the Boston College Center for Corporate Citizenship.

Green building is a key ingredient within triple bottom line investing

Pension funds invest according to input from a broad universe of stakeholders. Everyone from their pensioners, to employees and major investors has a particular reason to request that the fund focus on all three bottom lines simultaneously. And absolutely no one gives an inch on returns. At the conference, these investors reported that there is a lot a variation in how triple bottom line investing can look in different companies and different regions. However, green building was a key ingredient within nearly every type of triple bottom line initiative that they reported.

At the AFL-CIO Housing Investment Trust, which has financed more than 80,000 affordable and moderately priced housing units, major investors require the trust to meet CSR criteria, ensuring that investments are handled in a socially optimal manner.

For TIAA-CREF, which has a direct real estate portfolio of over $30 billion, the focus is on connecting environmental responsibility with asset competitiveness. Major tenants want LEED certified space, and they are not willing to pay a premium for it. Failing to address these tenant requirements will decrease TIAA-CREF’s asset competitiveness and decrease portfolio performance.

“Those that don’t operate green will be obvious, and they will go the way of the dodo bird” - Nicholas Stolatis, TIAA-CREF Global Real Estate

In order to limit future downward exposure and protect portfolio value, HOOPP portfolio manager Lisa Lafave calculates risk-adjusted returns, accounting for social and environmental risk. For HOOPP, environmental risk equals the risk of not being green, and losing asset competitiveness. By accounting for this risk and greening their portfolio, HOOPP expects to see higher occupancy, better tenant retention, shorter lease-up periods, and in certain markets, higher rents.

Experienced developers deliver great results with triple bottom line investing

Many investors and lenders have preconceived notions that socially-responsible investment initiatives automatically deliver below market returns. However, there are a number of firms that are redefining socially-responsible investment vehicles, while at the same time exceeding investor expectations.

Brandon Mitchell, Director of Development at Full Spectrum of NY, explains how his firm is doing well by doing good. Full Spectrum is a mission-driven organization, that seeks to reduce the housing burden in low-income communities, while also creating opportunities for local businesses to create jobs and wealth. They work with institutional-grade debt and equity investors, and focus on sustainable development because its good for the environment, the community, and their pocket book.

Full Spectrum of NY creates a product that few other development firms consider- they create environmentally and socially sustainable mixed-use, mixed-income developments in low-income and emerging communities. They have developed several successful projects in Harlem, including the Kalihari, a 249-unit condominium building with 50% affordable and 50% market rate units, designed to use 50% less energy than a conventionally-built structure.

Key features of the Kalahari include:

• A panelized wall system to reduce construction costs and shorten the development timeline
• A tight building envelope and energy star appliances for high energy efficiency, and renewable energy from building-integrated solar panels
• A green roof for storm water retention, tenant green space, and urban heat island mitigation
• Submicron air filters to improve indoor air quality
• After school programming for children, supporting working parents
• A creative art center, with a focus on African and Latino art

By creating mixed-income housing, Full Spectrum of NY can access incentives and grants accounting for more than 25% of their project capital needs. In addition, the firm is able to secure a low cost of capital for the remaining capital requirements. By utilizing sustainable building strategies, they lower operating costs and hedge against future energy and water price risk, a great selling point for residential buyers and commercial tenants.

This development strategy has worked well- on a recently completed development, Full Spectrum achieved a per square foot selling price for the market-rate residential units that was $125 to $350 higher than anticipated. This significantly exceeded the expectations of project investors, supporting Full Spectrum’s investment thesis:

“Integrating social and environmental factors into our projects has not only meant that the communities we build in benefit, but our investors benefit, and the homeowners benefit- we are creating a platform that allows us to redefine how we think about real estate and sustainability” - Brandon Mitchell, Full Spectrum NY

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If you liked this post and would like to receive more, please subscribe. Don’t forget to read the other installments of our Special Series on the Green Building Finance and Investment Forum - New York. As always, we welcome your comments.