Responsible Property Investing
RPI lies at the nexus of … Sustainable Cities and Buildings Socially Corporate Responsible Responsible Social Property Investing Responsibility Investing Real Estate Investing
Definitions • Real estate investments that benefit investors and the common good • Portfolio, asset, or property mgt. practices that produce social or environmental gains consistent with fiduciary responsibilities. • Efforts to address ecological integrity, community development, and human fulfillment in the course of profitable real estate investing • Going beyond compliance with minimum legal requirements to better manage the risks and opportunities associated with social and environmental issues
“Man really is the only animal that builds his terrarium around him as he goes and real estate is really the business of building that terrarium. So we have a tremendous ethical content, tremendous social purpose” James A. Grasskamp UW-Madison Professor of Real Estate
1996 by the UN Habitat Agenda “We endorse adequate shelter for all and making human settlements safer, healthier and more livable, equitable, sustainable and productive by socially and environmentally responsible corporate investment”
Property matters • > 50% of energy-related CO 2 is from building operations and transport • Perhaps 1 million+ janitors, maids, bellhops and doormen in the USA earn below a living wage • US loses 1.5 million acres of farmland per year to urbanization • 2 million occupied housing units in America lack water, toilets or electricity
Property‟s Triple Bottom Line • Economic Accounts – income, value, returns, public tax revenues • Environmental Accounts – carbon footprint, biodiversity, eco-efficiency, natural hazards, land conservation, etc. • Social Accounts – worker wages and benefits, worker safety, respiratory illness, affordable housing, urban revitalization, segregation, unemployment, security, history & culture, aesthetics, childcare, infrastructure
RPI Style Funds • Urban Funds • Land Conservation Funds • Brownfield Funds • Historic Preservation Funds • Low Income Housing Funds • Community Development Funds • Green Building and Smart Growth Funds • Responsible Contractor Funds
Two examples Learning Links Centers, LLC MuniMae Sustainable Land Fund
Working Groups • • TIAA-CREF Aviva • • CalPERS AXA • • BC Investment Mgt Corp. BC IMC • • AFL-CIO Investment Trust Caisse des Depots • • Methodist Church Pension F&C Board • Hermes • GE Real Estate • IL&FS • Kennedy Real Estate Counsel • Innovest • BOMA Intl. • Mistubishi • Urban Land Institute • Mn Services • Real Estate Roundtable • PruPIM • New Boston USA • Sumitomo • Institution Real Estate, Inc. • West LB
Common Environmental Practices • Setting energy, water, waste, GHG targets • Building recommissioning • Obtaining 3rd party endorsements (e.g., DJWSI) • Using renewable energy • Preparing habitat conservation plans for projects • Training occupiers on conservation • Supporting urban forestry
Common Social Practices • Providing fair benefits and wages • Investing in urban revitalization and affordable housing • Pursuing local hiring and training • Seeking design and service awards • Supporting community organizations • Maintaining good health and safety records
UNEP Finance Initiative Energy Conservation Better lighting, boilers, AC and office equipment and recommissioning are nearly always cost-effective. Investa saved AUS$30,000 and 363 tonnes of CO 2 per year in Parramatta offices at “minimal or no cost”. www.unepfi.net
UNEP Finance Initiative Fair Labor Practices Fair wages and benefits require 2.5% higher rents. But they improve service by 25% and increase rental income by 7% . General Growth Properties has promised janitors at its 194 regional shopping centers access to affordable health insurance, market-based wage rates, complaint resolution procedures, and green cleaning products. www.unepfi.net
SRPI REITs • Brandywine Realty Trust USGBC member and LEED building owner • Boston Properties US EPA energy star partner and NAREIT Leader in the Light • Simon Properties Carbon Disclosure Project participant • Equity Office Properties General Growth Properties DJWSI and FTSE4Good constituents • Others
What are the key criteria? 2006 SRPI Delphi Project
RPI Metrics 4.0-5.0, 3.0-4.0, 2.0-3.0 • More Walkable, Less Auto Dependent Places – Transit Oriented, Centrally Located, Walkable, Carpool Friendly, Bike Trails and Facilities • Low Carbon – Energy Efficiency, Daylight and Ventilation, Renewables, Local Sources • Worker Well Being – Parks & Open Space, Sense of Community & Place, Childcare, Handicapped Accessible, Amenities for Working Parents • Urban Revitalization and Reuse – Urban Revitalization, Adaptable Interiors, Suburban Redevelopment, Brownfield, Not on prime farmland
RPI Indicators Study
RPI Index, Sub-Indices Scores Portfolio 1 Portfolio 2 Energy Conservation 1.00 0.80 Corporate Less Auto- Citizenship 0.60 Dependence 0.40 0.20 0.00 Worker Well- Health & Safety Being Environmental Urban Quality Revitalization
Leaders‟ views on RPI 2007 Survey of Senior Real Estate Executives Sponsored by BOMA Intl., ULI, NAREIT, The Real Estate Roundtable Conducted in cooperation with Institutional Real Estate, Inc.
Are you using…? Planned or Under Not Done Consideration Implemented % % % Value Statement 39% 18% 43% Strategic Planning 36% 22% 42% Learning/Management 55% 29% 16% Systems Conservation 24% 23% 53% Responsible Contractor 50% 16% 34% Women or Minority Owned 52% 13% 35% Businesses Committee for 68% 12% 19% Sustainability or CSR Social or Environmental 59% 15% 26% Accounting Targets and Benchmarks 69% 19% 13% Disclosure 65% 18% 18% Stakeholder Engagement 44% 11% 45%
Are You Invested In…? Planned or Not Under Invested Consideration Invested % % % Brownfields 52.4% 17.0% 30.6% Green Bldgs 35.1% 32.4% 32.4% TOD 31.8% 16.9% 51.4% Infill or Revitalization 22.3% 15.5% 62.2%
Your RPI Stage? SRPI Stage % Non Responsiveness 7.1% Compliance 17.0% Efficiency 37.6% Strategic Proactivity 29.1% Sustaining Organization 9.2%
Mean Drivers Cost avoidance 3.8 Concern for risk and 4.6 return Peer activity 2.8 Employee 3.2 recruitment/retention Internal leadership 3.8 Business advantage 4.2 Opportunities to 4.3 outperform Moral responsibility 4.1 Voluntary codes of 3.9 behavior Stakeholder pressure 2.7 Investors 3.0 Customers 3.7
Prospects • 82% of executives would increase their allocation to RPI if it could meet their risk and return criteria
Is RPI neutral or positive for returns?
Desert Riparian Areas along Tucson‟s Tanque Verde Wash, 96-99 Colby and Wishart, The Appraisal Journal, 2002
Open Space in Portland, 1990-92 Note: best type was golf courses Bolitzer and Netusil, J. of Env Mgt, 2000
Conservation Subdivisions outperformed in So. Kingston, RI Average price Average Average per acre of improvement selling time lots sold costs per lot Conservation $125,000 $18,700 9.1 months Subdivision Conventional $107,000 $26,100 17.0 months Subdivision Mohamed, Urban Affairs Review , 2006
Regeneration Outperformed Total Annualized Returns, „81 - ‟02 J. of RE Portfolio Mgt, 2006 Retail Office Industrial All UK Property 11.49% 9.65% 9.09% Regeneration 15.50% 10.59% 12.60% Properties
The “Green Tilt” at Work Source: Innovest
Land Use Mixing in Single Family Neighborhoods, 1970 Tucson Use Benefit to Median Home Maximum studied Value from 10% increase in land use Commercial $990 12% Multifamily $940 20% Industrial $440 10% Public $930 21% Cao and Cory, Annals of Regional Science, 1982
Changes in Valuations near Dallas Light Rail Stations, 1997-2001 Clower, Australasian J. of Regional Studies , 2002 Land Use Control DART Office 11.5% 24.7% MFR 34.8% 42.0% Retail 30.4% 28.3% Industrial 21.5% 13.0%
Investment Returns from Responsible Property Investments: Energy Efficient, Transit Oriented and Urban Regeneration Office Properties in the US from 1998-2008
Study Question Can an investor be “responsible” and earn competitive returns?
Methods • Data – Financial from NCREIF – Energy Star from EPA – Regeneration from HUD RC/EZ/EC locator – Transit data from BTS • 4,460 office properties, 1999-2008 • Portfolio analysis & OLS regression
Methods • Dependent financial variables – End of quarter market value per square foot (log) – Annual income return (log of 1 + return) – Annual appreciation return (log of 1 + return) – Annual total return (log of 1 + return)
Methods • Control variables – Regional supply (completions) – Regional demand (job growth) – National market (NCREIF office index) – Property (age, size, floors) – Region – Subtype (CBD, suburban) – Congestion (density)
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