Responsible Property Investing

Gary Pivo, MRP, PhDUniversity of ArizonaUNEP FI Property Working GroupResponsible Property Investment Center

RPI INCLUDES Portfolio, asset, or property

management practices……that exceed legal standards……to improve ESG performance or

reduce ESG risks…...consistent with fiduciary

responsibilities.(e.g., workforce housing, green building)

SustainableCities and Buildings

Real Estate

Investing

CorporateSocial

Responsibility

SociallyResponsible

Investing

ResponsiblePropertyInvesting

RPI lies at the nexus of …

SRPI involves 3 core strategies:

•Acquiring good properties (e.g. energy star) and avoiding bad ones that can’t be improved (e.g., housing adjacent to freeways)

•Managing properties to improve their social or environmental merits (e.g., safety inspections)

•Being a better property company for your employees, community, and environment (e.g., flextime for parents).

Why Should NCREIF Care?• Institutional Investors and Asset Managers are committing

to Responsible Investing. (CalPERS, CalSTRS, NYSTERS, NYCERS, CRPTF, TIAA-CREF)

• 83% of US RE Executives would increase their allocation to RPI activities if it met their risk/return criteria.

• To avoid new regulations.• Plan Beneficiaries want attention paid to these issues.• There’s a fiduciary responsibility here. You can improve

returns and reduce risks via RPI; doing well by doing good. • The problems can’t be solved without you.

CEO Briefing: Responsible Property Investing

www.unepfi.net

UNEP Finance Initiative

Certified Green BuildingThe promise of lower running costs, greater productivity, and lower risk with little to no added cost.

ICADE/EMPG ‘s green building in Paris has 20% lower than average running costs without a construction cost premium.

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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 CO2 per year in Parramatta offices at “minimal or no cost”.

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UNEP Finance Initiative

Water Conservation Use reductions of 20-30% are cost-effective based on payback rates.

Hermes is saving £9,300 per year after spending £3,510 to install waterless urinal systems in London’s tallest office tower.

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UNEP Finance Initiative

Properties near transit reduce driving and appreciate faster than other investments.

Mockingbird Station, Dallas - “very successful” and attracting rents with a 40% above-market premium.

Transit Oriented

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UNEP Finance Initiative

Fair LaborFair wages and benefits require 2.5% higher rents, but they improve service productivity by 25% and 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.

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UNEP Finance Initiative

Urban Regeneration

Morley Igloo Fund - the UK’s first urban regeneration fund - is expected to outperform its benchmarks.

Property in UK regeneration areas have matched or exceeded national benchmarks, lowered risk per unit of return, and added diversification to property portfolios

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UNEP Finance Initiative

Community Development Education, crime prevention and homeownership programs cuts losses & improve income.

Learning Links Centers have increased net income by 26% through educational programming.

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UNEP Finance Initiative

Other ExamplesSafety and Risk Management

Parks, Plazas, and Atriums

Historic Preservation

Corporate Governance

Recycling

Current RPI Investment Options

Urban FundsBrownfields Funds

Workforce & Low Income Housing FundsHistoric Preservation Funds

Union Built FundsGreen Buildings & Smart Growth Funds

Community Investing FundsRPI Rated REITs and Investment Managers

Improver FundsRPI Screened REIT Funds & Funds of Funds

RPI is a global trend

France – Caisse des Depots, AXAGermany - WestLB

Japan – Mitsubishi, SumitomoUSA – CalPERS, TIAA-CREF, Kennedy, Pro Logis, GE

Australia – Investa, Lend Lease, Colonial FirstUK – PRUPIM, Hermes, F&C, Morley, Land SecuritiesIndia – Infrastructure Leasing and Financial Services

China – Swire PacificKorea – Korea Land

…to name a few.

Returns on Transit Oriented DevelopmentAppreciation Returns for Properties 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%

Returns on Urban Regeneration

Returns on Historic Properties

Energy Star Real Estate Metrics

Energy Star Real Estate ReturnsNCREIF Data Set, 1998-2007

Energy Star = 24% Higher NOI

Is this from lower costs or higher gross incomes?

SEATTLE CBD Green Building in NCREIF data set

LEED Not LEED Difference LEED Not LEED Difference

2005 2006

Percent Leased 65.5 (1) 89.9 (12) -24.4 67 (1) 91.8 (14) -24.8

Utilities/Occ. SF 2.22 (1) 1.55 (8) 0.67 2.31 (1) 1.58 (10) 0.73

Income/Occ. SF 32.24(1) 21.0 (10) 11.24 23.36 (1) 23.1 (12) 0.26

Income Return 6.95 6.59 (10) 0.36 4.89 7.20 (12) -2.31

Appreciation Return

18.15 (1)

20.93 (10)

-2.78 92.6 (1) 21.73 (12)

70.87

SRPI Stage

% Non Responsiveness 7.1% Compliance 17.0% Efficiency 37.6% Strategic Proactivity 29.1% Sustaining Organization 9.2%

The industry is farther along than you might think

RPI Working GroupsRPI Center• CalPERS• TIAA-CREF• BC Investment Mgt Corp.• AFL-CIO Investment Trust• Rockefeller Foundation• Methodist Church Pension Board• GE Real Estate• Kennedy Real Estate Counsel• BOMA• Urban Land Institute• Real Estate Roundtable• Others

UNEP FI PWG• Morley• Hermes• Caisse des Depots• Prudential• F&C• AXA• Lend Lease• Investa• Land Securities• Mitsubishi• Sumitomo

The RPI Center: A Research and Networking Organization focused on

1. Identifying available RPI investment products2. Evaluating the financial feasibility of RPI

investments3. Going beyond green to all ESG topics4. Supporting continuous improvement across

100% of the market5. Encompassing new buildings, existing

properties and whole portfolioswww.responsibleproperty.net