Preqin sits down with RSMvwin德赢娱乐’s 马克Jakovcic, 合作伙伴, and RSM US LLP’s 斯科特Helberg, senior manager and real estate analyst, to discuss why real estate GPs and LPs should consider 环境、社会和治理, and how to effectively implement 环境、社会和治理 policies into their investment decisions.
Preqin: To what extent is 环境、社会和治理 a key element of the decision-making process for real estate investments?
Jakovcic:环境, social and governance investing—known as 环境、社会和治理—is increasingly becoming a differentiator in the real estate industry. 环境、社会和治理 programs foster the ability to identify and assess risks in asset acquisition projects, as well as across broader investment decisions and strategies. These criteria are increasingly considered by asset managers and investors.
环境、社会和治理 is more frequently being used as a risk management tool, as well. For some additional upfront costs, 环境、社会和治理 provides an opportunity to make large operational savings during the life of an investment. 例如, an investment in energy efficiency can potentially be a good strategy. Commercial and residential buildings account for a third of global greenhouse gas emissions and consume up to 40% of global energy. Well-developed 环境、社会和治理 programs can therefore enable real estate investors to manage the risks associated with climate change.
Preqin: Why should real estate players increase their focus on 环境、社会和治理?
Helberg: Investing preferences are going to be crucial in this highly competitive market. Millennials are on track to inherit $30 trillion in assets over the next few decades, and they've emphasized social responsibility and climate change issues more than previous generations. It’s important that GPs have 环境、社会和治理 policies and procedures in place in order to attract that capital.
Another benefit that maybe isn't as apparent is the karma-building effect of an active 环境、社会和治理 policy. Being able to connect with the community and demonstrate the positive impacts of your policies might actually help you later on.
Preqin: How can private real estate professionals most effectively implement 环境、社会和治理 into their investment decisions?
Jakovcic: Rather than focusing on a sweeping range of 环境、社会和治理 factors, GPs need to focus on understanding the factors that are material to them and that are likely to impact the financial condition or operating performance of the company, as well as what matters to their investors. 房地产 is primarily focused on environmental issues, but looking at it from a social pillar standpoint, you also have health and safety and working conditions. 和 from a governance standpoint, ethics and risk management are viewed with a critical eye.
A lot of GPs understand what 环境、社会和治理 is and the various criteria required to evaluate their own organizations, but there are a lot of questions around uniform reporting, given that it doesn't exist at this time. To successfully launch an 环境、社会和治理 program, companies should start by considering creating a vision or mission statement that defines the purpose of the program and what it means to them as well as to investors. Consideration needs to be given to which measurements apply and how to best report them, as well as their impact.
Helberg: As we're increasingly focusing on minimizing carbon footprints, evaluating the materials used is going to be a huge part of the development and construction process. 例如, we are now looking at how to effectively utilize energy and focusing less on carbon fuels and more on electricity. There are a few options out there, but they might not work for everyone, depending on their location or what they're doing with the property.
Preqin: When it comes to 环境、社会和治理 adoption, what differentiates investment in 北美n real estate from the rest of the world?
Helberg: Most would agree that 欧洲 is the leader when it comes to 环境、社会和治理 policy, standards and investor preferences. 例如，U.K.-based REIT Great Portland Estates recently issued an 环境、社会和治理 credit policy. Indeed, the EU itself has imposed policy to require disclosures from asset managers. 北美 is definitely behind in comparison: a lot more 环境、社会和治理 reporting has been investor driven rather than policy specific. Until now, though. We have seen a 40% increase in 环境、社会和治理 reporting among the top 100 public REITs in 北美 over the past few years. 也就是说, while there are funds creating new investment vehicles specifically aimed at carbon footprinting and other 环境、社会和治理 standards, 北美 is still behind 欧洲.
Preqin: Looking more closely at the 北美n real estate market, 2019 fundraising figures suggest increasing capital consolidation—only 187 funds closed but they secured a record $102 billion in aggregate. Do you think this trend will continue?
Jakovcic: We’re definitely seeing more capital consolidation and we do see this continuing. With heightened concerns about economic volatility and a downturn, investors are certainly looking at more conservative approaches to investing in real estate. This means middle market real estate funds will need to diversify their structuring and 环境、社会和治理 reporting in order to attract capital.
Preqin: The number of 北美-focused real estate funds in market is approaching a record level of 590. Do you expect competition in the 北美n market to intensify?
Helberg:绝对. We're close to record levels of dry powder, interest rates are continuing to decline, 3月5日, 美国.S. 10-year Treasury rate dropped below 1% for the first time ever. With the volatility in the equity markets, investors are going to be looking to real estate as a much more stable asset choice.
Looking at the current COVID-19 outbreak, in the short term there won't be a lot of activity going on as people want to get a better understanding of the potential depth and impact of the virus on the economy. But looking at the big picture, as interest rates remain low, we do expect property prices to continue to rise and cap rates to compress as people look to invest in real estate. On the fundraising side, this could price out middle market fund managers that have to hit return and yield targets. 和, as property values continue to rise, it's going to be easier for the larger fund managers to acquire those assets compared to the middle market.
