Advancing Sustainability in CRE Finance in a Shifting Landscape
With political headwinds reshaping the corporate responsibility landscape, commercial real estate (CRE) leaders, policymakers, and academics recently gathered in New York City for the NYU Stern Chen Institute for Global Real Estate Finance’s 3rd Annual Symposium on Innovation & Sustainable Real Estate to discuss the future of sustainable real estate finance, investment, operations, and technology. In a series of panel discussions, industry leaders offered their perspectives on how sustainability is evolving in a new political environment and why green policies still make business sense.
A Growing Need for Public-Private Partnerships
Achieving sustainability is a collaborative effort. Public-private partnerships are required to address the scale of the challenges, such as housing shortages, climate risks, and financial market pressures while ensuring value creation and shared prosperity, according to “Reimagining Real Estate: A Framework for the Future,” published by the World Economic Forum.
Neither the public nor the private sector can succeed alone, the report states. Public sector budgets — often partly reliant on real estate taxes — have been increasingly constrained by a wide range of factors, including housing shortages, weather events, and migration. The report found that markets with robust public-private sector partnerships made better progress in areas such as decarbonization and affordable housing development.
“We found that it is issues like affordability and investing sustainably that are the common threads that connect us as real estate investors and as civic leaders no matter where we are in the world,” said Dr. Sam Chandan, Founder and Non-Executive Chairman, Chandan Economics, and Founding Director & Professor, Chen Institute for Global Real Estate Finance, NYU Stern School of Business, who co-authored the report and organized the symposium.
For instance, office-to-residential conversions have been successfully completed in regions with effective public-private partnerships.
“As an architect, it’s about getting more creative as to how you can convert more of these buildings to multifamily through public and private sector partners,” said Sonia Khanna, Investment Partner, Galway Sustainable Capital, adding that many cities have utilized public-private partnerships to revitalize downtown areas that enhance quality of life.
Sustainability Still Makes Business Sense
Many panelists agreed that sustainability and green financing programs are not going away, but, for the foreseeable future, discussions and marketing efforts with stakeholders will require more creative approaches. Kalin Bracken, Head of Real Estate at World Economic Forum, said that the organization has heard from many of its CEO members that while ESG must now be navigated more carefully, they are still pursuing goals related to corporate responsibility.
Before the recent changes in the federal government, preexisting local rules and regulations had already added challenges to projects like solar panels, for example. However, many organizations have been pursuing other energy-efficient upgrades while the regulatory and political environment evolves.
“With things like LED lighting, it’s something we can do across all of our assets at scale and make a meaningful difference,” said Karen Mahrous, Senior Vice President, Head of ESG, Clarion Partners. “For example, we’ve been in contract negotiations for over two years on a solar deal. In that time, we’ve also done 200 LED retrofits. We have saved more energy than we would produce from a solar panel rooftop; it’s just still very complex to scale up projects like these.”
Mahrous said her organization’s investment in its national LED lighting retrofit program has paid for itself and then some. “In the last few years, we have saved 23 million kilowatt hours, and more importantly, we have already saved about $4.5 million in energy and maintenance costs from that program.”
Gunnar Branson, Chief Executive Officer of AFIRE, summarized the cautious optimism many speakers at the symposium conveyed and CRE’s potential to continue to solve its most pressing challenges by pursuing sustainable projects and solutions.
“When we talk about sustainability, when we talk about affordability, when we talk about efficiency, it’s starting to be talking about the same thing and they’re starting to come together in a lot of ways,” Branson concluded.
Interested in the multifamily real estate investment market? Contact Arbor today to learn about our array of multifamily, single-family rental, and affordable housing financing options or view our multifamily articles and research reports.