As it turns out, the real estate market has contributed the most compelling facts I could have ever hoped for—as markets are wont to do. From Stockholm to Houston and from New Delhi to Sao Paolo, a refreshing free-market breeze is blowing in the direction of green buildings and green communities. The biggest real estate players have felt it and have come up with two sets of four-word phrases to describe why so many people are building green. They are: “Our Investors Require It” and “Our Lenders Prefer It.”
This is the first of two articles explaining how essential and fundamental green building has become to the real estate market.
“Our investors require it”
I was first introduced to the growing investor preference for certified green building projects in Stockholm five years ago. I asked a market expert why so many buildings were LEED certified in a country where eco-construction techniques exist in abundance. He told me that more than 50 percent of commercial buildings in Scandinavia have international investors and they are requiring LEED. Why? Because they want an international benchmark for their global portfolios consisting of green buildings.
The idea that multiple institutional and other major investors were consciously assembling global portfolios of green, high-performance buildings was a foreign concept. I knew that sophisticated developers were looking for a “product differentiator" in some markets. I also knew that some corporations wanted to demonstrate leadership in ESG (environment, social and governance). Others were catering to employers and tenants seeking to attract and retain young “knowledge-workers” who valued the ecological goals inherent in green buildings. I also knew that the short-term economic payback of green building standards was very inviting. I had read several studies from esteemed academic institutions that concluded green buildings had faster lease-up periods and were trading at value premiums over non-certified buildings.
What seemed almost too good to be true, however, was the notion—suggested in Stockholm—that some global investors were requiring third-party certified green construction from their development partners. And investors were doing that everywhere around the world, even in Scandinavia.
These days that conversation in Stockholm seems quaint. Scores of global financial institutions from APG, the behemoth Dutch pension plan that controls €425 billion, to USS, Britain’s￡64 billion University Endowment fund and the U.S.’s own CalPERS $275 billion pension fund, say openly that they prefer to invest in green building projects. Many of these leading institutional investors are members of GRESB, an Amsterdam-based industry group that assesses the sustainability of real estate private equity funds and REITs worldwide. Mega-real estate players including TIAA-CREF, Tishman Speyer and Hines utilize the Urban Land Institute’s Greenprint Center in an effort to calculate carbon footprints and improve their GRESB scores.
So when major real estate portfolio owners say their "global investors" are curious to learn more about their GRESB score, understand ESG engagement patterns, and inquire about risk reduction strategies and portfolio “green-up” opportunities, it's fair to say that the market mandate for green buildings is real. Who am I to argue with what the market is saying?
In Part 2, we explore the next four-word phrase detailing the business case for green buildings: “Our lenders prefer it.”