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Sustainable Real Estate: Where Profit Meets Impact

Sustainable eco village concept.  3d rendering of house symbols on fresh spring meadow with blue sky in background

Green Retrofitting 

The ever-increasing population and urbanization of communities along with climate change concerns has made sustainable real estate a very important topic for investors over the last decade. As we launch into a new decade, real estate developers must consider their sustainability or “green” strategy in order to remain relevant, competitive, and perform well economically for the long term. Not only is this a part of the demand of home-owners and commercial building renters, the upfront costs of sustainable retrofitting can be very helpful to the bottom line in the long term. 

LEED Certifications 

The LEED rating system by the US Green Building Council (USGBC) provides guidelines for real estate developers “for all building types and all building phases including new construction, interior fit outs, operations and maintenance and core and shell (USGBC).”

Since its inception in 1993, the LEED rating system has helped over 94,000 projects become LEED certified. LEED has been a leader in solving one of the most difficult problems in sustainable investments: how to measure impact. 

In fact, one of the biggest issues concerns for investors when it comes to impact investing is how to due diligence and measure the impact of projects, as reported in Phenix Capitals Impact Investing Asset Owner Trend Report 2019. 

Because there are easily measurable cost savings (i.e. savings for heating and cooling buildings), third party certifications (i.e. LEED), as well as the savings and impact of using more sustainable materials, real estate tends to make more sense to investors as a sustainable investment.  

Climate Change Considerations for Real Estate

On January 19, 2020, an article by BisNow announced reported that PGGM, one of the world’s largest investors is preparing its portfolio for Climate Change:

“Dutch investment giant PGGM is undertaking a radical exercise to find out which assets and areas in its portfolio are most exposed to climate change, and using the data to shape future investment decisions, including where it buys new buildings.

According to the article, among its many investment areas, PGGM (which is based in the Netherlands), is the world’s 12th largest owner of real estate. With the help of Munich RE, and other data analysis resources, the investment giant is including variables like natural disaster risks, and climate change risks like rising sea levels into account for investment decisions, specifically as it relates to real estate. 

The Importance of Government Regulation for Sustainable Real Estate

Although there is a much wider understanding of the importance of mitigating the impacts of climate change, sustainable infrastructure and real estate still comes at a premium price, and some building owners just won’t make the change unless forced to by government regulations. 

“We expect governments to step up regulatory efforts in order to get real estate to reduce its carbon footprint, in order to reach Paris Agreement goals,” PGGM Senior Director for Private Real Estate Mathieu Elshout said. “[CREEM research] enables us to determine with greater accuracy the pathway that each asset will have to take to meet those goals, and therefore the risk for certain assets (BisNow)”

In New York City, the Climate Mobilization Act has six new bills that include requirements for real estate like upgrading boilers and installing new windows to meet the goals of cutting greenhouse gas emissions by 40% by 2030, and 80% of 2050. 

“Starting in 2024, building owners who don’t comply will be hit with fines totaling the difference between the emissions limit for the year and its actual emissions, multiplied by $268 (Forbes).”

Conclusion: Real Estate is Key to Making Sustainability Profitable 

For years, profitable impact or profitable sustainability has been an oxymoron. However, when we get smart in areas like real estate development, that is no longer the case. Studies have shown that green or sustainable retrofitting can:

  1. Reduce energy costs
  2. Increase employee productivity 
  3. Improve health and quality of life of people who live and work in these buildings 
  4. Increase overall property value

Source: https://www.servicefutures.com/green-retrofitting-important-bottom-line-think

In conclusion, sustainable real estate is really where investors, (especially the big ones) are beginning to realize the short term and long term value. And in the end, the people, the planet, and the investors will be thankful for it. 


January 29, 2020

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