Let’s meet at the Sustainable Industries Economic Forum

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I am thrilled to be participating in the upcoming Sustainable Industries Economic Forum here in San Francisco!

Are you coming?

I will be part of a premiere panel including Paul Hawken and Phillip Michael Williams. We will discuss triple-bottom line investing in these challenging economic times.

Special request –> send me your burning questions and perspectives on the state of green finance and sustainability, and I’ll cover them at the Forum.

The current situation is a perfect storm that feeds off economic worry and unprecedented opportunity within green building and energy efficiency. That leaves lots of folks wondering, “what’s it going to take?” to move sustainability forward.

Send me a note or write a comment on this post about your thoughts, and I’ll try to work your perspective into the mix.  I look forward to the dialogue.

Event Details

November 19, 2009

St. Regis Hotel, San Francisco

8am - 11:30am

You can sign up for the event here

Please join us for what is sure to be an enlightening and insightful event as we look to foster creative solutions for our evolving markets.

Related reading:

• SI article featuring Lisa Michelle Galley

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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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Part 6: Starting A Green Real Estate Fund?

If commercial real estate has truly embraced going green, why bother with green real estate funds?

In Part 6 of our Special Series on the Green Building Finance & Investment Forum - New York, co-sponsored by Galley Eco Capital, we talked shop with established and emerging green real estate fund managers. We wanted to learn why investors and development partners want these funds, and the do’s and don’ts for building a green fund.

The panel, moderated by our own Lisa Michelle Galley, featured the perspectives of  industry pacesetters Deborah La Franchi of Strategic Development Solutions, John Hirschfeld of Class Green Capital Partners, Raymond McGaugh of Kiwanja Capital Partners, and Leanne Tobias of Malachite LLC.

Does commercial real estate need pure green real estate funds?

The panelists highlighted the following advantages of a green-specific fund strategy:

• Green real estate funds align capital more clearly with mission. Increasing numbers of  of institutional investors, especially pension funds, are adopting a double and/or triple bottom line (TBL) focus - meaning they measure economic, ecological and social returns on their investments. Green real estate funds allow them to allocate capital to sustainable investments at their targeted market rate of return. For Raymond McGaugh and Kiwanja Capital, a green, urban redevelopment investment strategy resonates better with their investor audience.

• JV development partners are seeking a green fund’s concentrated expertise. It’s not just investors that are looking for green real estate, potential JV partners are looking toward green capital sources. Strategic Development Solutions recently surveyed over 400 developers to gauge whether a green-specific fund would satisfy their equity needs. The response was very positive, even among the groups that had never worked with green before. The results make sense: there are many experienced, smart development groups that need to gain the organizational capacity to develop green properties cost effectively, or risk becoming obsolete. Partnering with capital sources committed to sustainability, that can also educate them is a cost-effective method of gaining this capacity.

“Developers would love to have a capital source to help them up the green learning curve.“-Debbie La Franchi, Strategic Development Solutions

• Green funds benefit from the superior financial performance of green assets. Green real estate assets benefit from lower operating costs and reduced performance risk. A “mixed” fund that invests in both green and conventional real estate assets dilutes the positive green impact on returns. For Leanne Tobias of Malachite LLC, this is the most important reason for an all-green fund: “If you are going to spend the time to create a new investment platform, why would you not build a vehicle that will maximize the benefit from green-specific performance enhancements?”

Best practices for building a green real estate fund

Already raising your own green fund or planning on contributing capital to one? Here’s first hand advice from the panelists:

• Your team must have sustainability expertise. The fund absolutely must have in-house staff that is knowledgeable of green construction and design, and is experienced working with both LEED and Energy Star rating systems. For John Hirschfeld of Class Green Capital Partners, this means staff that understands sustainable construction and can “get through the green clutter“, identifying the financial implications of green components for a potential investment, and bring these figures into the financial engineering of both the asset and the fund.

• Pay attention to both the leasing team and lease structure. Work with your JV partners to ensure that the leasing team for your investments understand the marketing benefits of green assets, and can adequately convey these benefits to the marketplace. (Our note: also make sure that their asset managers know and understand the value of green). It’s also crucial that your partners are using the right lease structure, so that the financial benefits of going green are accruing to the investors, not just the tenants.

• Establish the right partnerships. Seek partners that can help you maximize the returns from your green fund. As an example, Strategic Development Solutions has a partnership with Johnson Controls, who evaluates the green construction and design for each fund investment. Strategic partners look at the fund’s activities from a different lens, ensuring that no important details have been overlooked and that potential returns are not left on the table.

• Proper reporting is crucial. Reporting obligations are critical components of a successful green fund. Your triple-bottom line investors will require reports that show the environmental impacts of your investments- how much energy and carbon emissions is your investment portfolio actually saving? Your JV partners and their vendors will have to accurately track energy and water usage. In addition,  don’t forget about appraisers: there aren’t many green comps out there yet, and if you want to maximize the value of your assets, you need accurate and robust reporting of energy performance and green-leasing advantages to build the case for higher valuation.

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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.

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.

UN ’s New Report on Responsible Property Investing

Today, multiple posts are required just to stay on top of the good news onslaught.

Earlier this year, I put out a bunch of posts about the good work of the Responsible Property Investing Center and why it is so critical for spreading the principles of triple bottom line investing within commercial real estate.

Now, we’ve learned through Dr. Gary Pivo, that the UN has just issued a new, stronger report cataloging the many successes institutional investors have enjoyed applying the principles of responsible property investing.  It also urges the rest of the investment real estate community to work harder to adopt its Principles for Responsible Investment.

Still mulling over whether triple bottom line investing would make a difference to your portfolio’s returns? Then you should definitely take a look. I think the terms ‘triple bottom line’ or ‘environmental, social, and governance’ tends to trip up some of our old school colleagues.

When you read through the principles plus the examples of day to day actions most of the signatories are taking across their portfolios, however,  it becomes pretty clear: RPI simply represents good management practices.

Already have some experience with applying responsible property investing across your asset portfolio? By all means, speak up! The rest of us would love to hear about it.

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