Metrics for Responsible Property Investing:
Developing and Maintaining a High Performance Portfolio
2009 ULI Fall Council Forum
RPI Metrics Panel Webinar Presentation
October 28, 2009 (9:00 AM PST)
Jean Rogers, Arup
Lisa Michelle Galley, Galley Eco Capital
David Wood, Responsible Property Investing Center, Boston College
Agenda
• What is responsible property investing (RPI)
• Metrics imperative
• Background to the RPI Council project
• Metrics and structure
• Use cases
• Road test
• The Panel
• The Paper
The Big Picture for Real Estate
• National economic downturn
• Energy (in) security
• Weakened consumer fundamentals
• Climate response
Responsible Property Investing
Responsible Property Investing facilitates a more comprehensive
engagement between investors, their properties, and tenants by “taking
into account social, ethical, and environmental factors in the selection,
retention and realization of investment, and the responsible use of
rights (…) that are attached to such investments1.”
_________________________1 Mansley, definition of Responsible Property Investing
Ten elements of responsible property investing
• Energy Conservation
• Environmental Protection
• Voluntary Certifications
• Public Transport Oriented Developments
• Urban Revitalization and Adaptability
• Health and Safety
• Worker Well-Being
• Corporate Citizenship
• Social Equity and Community Development
• Local Citizenship
Source: UNEP-FI Property Working Group
Context for Responsible Property
Investing
• State of the industry
• Need for
• Other metrics efforts and how this ties
in
Why RPI metrics?
Fund
managers
Acquisition Asset
managementDivestiture
Commit to
responsible
property
investment
Institutional
investors Development
Can traditional financial metrics answer these questions?
What makes this
fund manager
“green”?
How is this fund
manager seizing
opportunities and
addressing
challenges, while
meeting fiduciary
duty?
What is the
sustainability
performance of this
investment?
Does this investment
respond to risks and
opportunities?
Will this acquisition
improve the
sustainability
performance of the
portfolio as a whole,
or require additional
investment?
How are assets
performing in terms
of sustainability? Is
performance
improving as a
whole?
What opportunities
have been tapped?
What risks remain?
Which asset classes
outperform on
sustainability?
Is it time to capture
value from
sustainable assets in
the marketplace?
Will value decline
through increased
regulation and other
drivers in the
market?
Will net zero
buildings render
some assets
obsolete?
How can the
commitment be
demonstrated?
Background to the RPI Council Metrics Project
• ULI Fall 2008 Meeting called for Metrics Research– Define RPI in and of itself (How is a RPI portfolio different?)
– Provide tangible, real world examples of specific metrics
– Support investors practicing RPI
– Link to Value!
• Lisa, Jean and David spearheaded effort
• KPIs research – current reporting practices
• Spring 2009 – Tentative Proposed Metrics
• Road testing – case studies
• Presentation at ULI Fall 2009 Meeting
• Paper – Draft for Comment
Metrics in Practice
• Many property companies are implementing sustainability
initiatives on ad-hoc or rolling basis to existing building stock
• Few are tracking results at portfolio scale and fewer are
reporting back on this performance
• Focus for many is on promoting 1-2 showcase green buildings
• Investors and stakeholders are unable to identify:
– How green is the overall portfolio
– Is sustainability performance of the portfolio improving
over time?
– How does the portfolio’s green performance compare to
others (benchmarking)?
– What are the sustainability risks of this portfolio?
Defining new performance metrics
Key requirements for new RPI metrics:
• Must respond to 10 principles, covering
environmental and social aspects
• Be flexible, recognizing wide range of RPI projects
• Enable analysis of a single acquisition or a whole
portfolio
• Address risks and opportunities
• Focus on high impact, KEY performance indicators
• Minimize burden of data collection and use proxies
for performance where applicable
• Facilitate tracking and benchmarking performance
over time, normalizing results where needed
• Be scalable, straightforward and simple
“There is no set of
broadly accepted
metrics for
evaluating the
commitment of real
estate investors to
principles of RPI.”
Pivo & McNamara,
International Real Estate
Review, 2005
Structure of Metrics
• 2 types of KPIs: Acquisition & Portfolio – One building vs. many
– Screening vs. monitoring
• Issues covered:
– Energy Conservation and Carbon Management
– Environmental Protection
– Urban Revitalization and Adaptability
– Smart Growth and Transit Oriented Development
– Health and Safety
– Worker and Tenant Well Being
– Social Equity and Community Development
– Local Citizenship
– Voluntary Certification
– Governance
• Characterization data: used to normalize results
Impact on investment return
Increase or improvement in:
• Tenant retention/renewal rate
• Vacancy rate
• Tenant satisfaction
• Market demand
• Favorable lease terms
• Rental premiums
Decrease in:
• Utility expenditure
• Risk from price volatility
• Maintenance expenditure
• Insurance costs
Revenues Operating Expenditures Financing & Value
Improvement in:
• Market appeal
• Sales premium
• Cap rate
• Ability to attract capital
• Risk profile
Reduction in:
• Asset obsolescence and
devaluation
From one showcase green building
…to a high performance portfolio of green buildings
Making
Progress
Exceeding
Targets
Road Test
• Study participantsAcquisition – BACFOF
Portfolio Management – TIAA-CREF
• Review metrics for relevance
• Attempt to use in the “real world”
• Focus on “doing” and insights: ease of use,
materiality, link to value, impact on investment
strategy & process
• “Must have”, “nice to have”, “don’t go there”
• Given 2 weeks and an excel spreadsheet with
over 50 metrics to start
What we learned about the metrics
• Less is more
• Social indicators static (critical during acquisition)
• Environmental indicators dynamic (improve over
time)
• Acquisition and management practices together
shape the quality of the RPI portfolio over time
• Links to value essential to offset burden of reporting
• Metrics help prioritize investments
• Help is available
Benefits of RPI metrics
Enables investors and property owners to:
• Demonstrate fiduciary responsibility
• Track performance trends over time
• Benchmark performance by asset type and region
• Identify outliers: weak performers and best practices
• Identify risk exposure at portfolio level
• Evaluate links between sustainable performance and financial
returns
• Assess impact of RPI initiatives at portfolio level and prioritize
investments
• Inform future acquisition decisions
• Improve transparency
• Demonstrate real estate-tailored commitment to social
responsibility
The RPI metrics panel - November 4, 2009
• David Wood, Director, Responsible Property
Investment Center, Boston College
• Lisa Michelle Galley, Managing Principal, Galley
Eco Capital
• Jean Rogers, Principal, Arup
• Nicholas Stolatis, Director, Strategic Initiatives,
TIAA-CREF
• Scott Zengel, Vice President, Bay Area Council
Family of Funds
The RPI Metrics Paper – Developing and
Maintaining a High Performance Portfolio
• Authors: David Wood, Lisa Galley, and Jean Rogers
• Draft for Comment available at ULI Fall Meeting on
November 4, 2009
• Volatile real estate investment environment
• Risks and opportunities
• Current practices in reporting
• New metrics for a new era – Proposed KPIs
• Portfolio characterization
• Acquisition, portfolio management, and reporting
• Implementation
• Case studies
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