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Debt & Equity

Green the new black as REITs dive into sustainability movement


By Susan Persin, Trepp

Green building has become a widely accepted business practice in recent years as cost savings and higher building valuations have been better documented.

Owners have experienced cost savings for heating/cooling and water, and “green” buildings help properties attract tenants whose policies call for them to lease space in environmentally friendly buildings.

Government regulation, which can affect anything from preferential treatment for entitlements to requirements to disclose information about building efficiency, provides further incentive for green building.

It is not uncommon for owners to adopt “green” practices for new development and redevelopment.

REITs and other institutional investors are at the forefront of the green building movement. Most REITs have green buildings in their portfolios, and have moved toward green building for new construction.

A number of groups publicly recognize assets and real estate companies with notable “green” practices. Their awards provide a way for investors to compare companies and assets.

This week, four REITs, including Liberty Property Trust, Brandywine, Vornado, and Kilroy were among the Energy Star Partner of the Year Award

Winners for their contribution to reducing greenhouse gas emissions through energy efficiency. For Brandywine, it was the second consecutive year as an Energy Star Partner of the Year.

Also in April, retail REIT Kimco Realty (KIM), won the Lighting Energy Efficiency in Parking (LEEP) campaign award for the largest absolute number of facility upgrades. The LEEP campaign recognized Kimco for making the most energy-saving upgrades to parking areas, installing lighting control systems at 160 properties, affecting 51 million square feet of parking surface area, since 2011.

Earlier this year, in January, industrial REIT Prologis (PLD) were included for the 6th time in the Global 100 Most Sustainable Corporations in the World list.

The Global 100 consists of the 100 top-performing companies (not just real estate) worldwide based on a range of sector-specific ‘sustainability’ metrics. Prologis’ approach to sustainability includes environmental stewardship, social responsibility and governance.

The Company has developed more than 43 million square feet of facilities that meet green building standards and has completed energy efficiency improvements in 60% of its global portfolio.

The company also supports employee volunteer efforts in local communities, donates warehouse space to nonprofits, and makes donations through its Prologis Foundation.

Hannon Armstrong (HASI) is a “green” investor in a different way. Rather than winning awards for its “green” investments, the Company invests debt and equity in sustainable infrastructure projects.

HASI focuses on projects that increase energy efficiency, provide cleaner energy, and positively impact the environment or make more efficient use of natural resources.

The Global Real Estate Sustainability Benchmark (GRESB), which was launched in 2009, is another measure that helps investors assess and compare the sustainability performance of property portfolios around the world.GRESB‘s goal is to help investors quantify the “greenness” of their investments in real estate companies.

In 2013, 550 property companies and funds participated in the GRESB. The GRESB database covers 49,000 assets in 46 countries. More than 100 institutional investors, fund managers and property managers use GRESB data.

Now that the financial and societal benefits of “green” building are more proven and green building practices are becoming more widely adopted, the expansion of GRESB over the past five years shows that the industry is moving to the next level, which involves establishing the ability for investors to evaluate and compare companies and property portfolios.

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