RESIcast: Responsible investment increasingly important for residential

Impact investing is becoming more important for investors but there are benchmarking and return expectation hurdles that residential and real estate assets need to overcome, a panel of experts told Property Week on a RESIcast.

“There is a massive change in terms of the mindset of investors, with the rise of ethical funds across the globe over the last decade. Interest has been growing year on year in the real estate space,” says Philip Nell, head of real return assets at real estate investment manager LaSalle Investment Management.

Impact investing involves lending on assets that create measurable social and environmental benefits while also generating financial returns.

Nell adds that “real estate is the ultimate impact asset class”, with the built environment providing a much more tangible way to positively affect society and the environment than taking a position in a US healthcare fund.

Nell adds that LaSalle has plans to expand its social impact offering.

“We’ve been investing on behalf of individual clients into pure social impact asset classes for the past 10 years or so. These are things like care homes or retirement living and social housing. That’s been very specific to those clients but going forward we’re looking to create something that is a co-mingled product that would apply for a number of different clients and would look at a number of different types of assets. While this will have investment into the housing sector, we’ll also look at care, education and other forms of impact,” he says.

Real estate, however, does face a number of challenges in establishing its responsible investment credentials.

Convincing investors that sustainable, responsible investment does not go hand in hand with lower returns is one such hurdle.

“It’s the investors, the capital, that will ultimately drive and make these decisions,” says Mervyn Howard, executive chairman at Apache Capital Partners, which has a 6,500 BTR pipeline in the UK with partner Moda. “If they won’t lend, then that will hold you back. The challenge you always get from investors is if there is an economic trade-off here. Where I personally come down on these things is you have to embed these things in your own investment strategies.”

Being able to measure and demonstrate to investors the impact real estate has is another challenge.

“Data measurement is a real challenge – how does one prove how environmentally sustainable buildings are? How do you measure the impact of the built environment at a broader social level?” says Nell.

GRESB, a global, investor-led index that measures and benchmarks the environmental social and governance (ESG) performance of real assets, is a step in the right direction, according to Howard.

“Investors can look at different managers, regions, asset classes, public and private and see how they are performing on hard data of use of buildings such as water usage and carbon emissions through to softer stuff like organisation and policy,” says Howard. “That creates a benchmark and a measure. The direction of travel is a positive one and we have seen a huge growth in the number of participants in that index. You can see a real industry push to get our heads around these issues and improve.”

The 2019 GRESB real estate benchmark covers more than 1,000 property companies, REITs, funds and developers.

You can listen to this podcast via iTunes or Spotify or SoundCloud or through the player above. This podcast was produced by Blackstock Consulting [www.blackstock.co.uk] founder Andrew Teacher and you can Tweet your views @andrewjteacher and @RESIevent