Rinse, Repeat...Reprise

I recently watched a presentation by Spencer Glendon at the Sohn Investment Conference on the impact of climate change on our way of life and our economic fortunes. It got me thinking about some of my past posts. I thought it might be worth a reprise this one I did back in 2016 on Responsible Property Investing. It was pretty good back then and holds true today.

We invest with an eye toward creating competitive and durable market rate returns.  Call it what you will - my experience is that incorporating a holistic lens drives alpha returns.

I believe that the Responsible Property Investing is the leading edge. Call it "triple bottom line" or "people, planet, profit"  - it is about being really smart and intentional about our investments. The first hurdle to overcome is the notion that investing with an environmental or social sense will naturally result in lower returns or performance. I think it is just the opposite. We are investors first. Like anyone else, when we deploy capital, we want to get it back with a return - either in yield or appreciation. The TBL/PPP principles are about creating a strong and healthy foundation, be it in the context of a building, neighborhood or city. By consciously using our natural resources, reinvesting in our people and our communities and recognizing that diversity results in better decision making and stronger ties, we are creating a higher quality asset. If we raise the standard of living for all, we will create jobs and healthy and safe places to work and live.  In turn, raising the tax base,  supporting investment in infrastructure and community programs, driving art, music, better education and individual agency and commitment.  As you create vibrant, healthy, desirable neighborhoods you also raise asset values.

I’m currently tracking the overlay between climate change and populations which are disproportionately impacted. Frankly, if we don’t get our act together on this one, we will continue to see rising unrest as our resources are strained to capacity - water fights, food shortages, migration and dislocation; the typical sustainability issues - water, energy, waste, carbon; increasing income disparity. Let’s look at water (or lack thereof). If you invest in infrastructure that delivers clean and accessible water to communities in need you start to tackle gender inequality and economic returns. In many countries, women are the ones who collect water from far away places, often at great risk. By investing in water delivery, you reduce the amount of time and effort they must go to to provide for a basic need - thereby freeing up time for them to go to school, increasing the educated population, reducing health care costs and allowing them the opportunity to engage in commerce, providing a positive benefit into the local economy. 

With every investment we make (money, time or capacity) we are making a clear statement of what we choose to impact. We can be far more intentional in how we develop and redevelop. Doing mixed-income, cross-generational development. Use responsible contracting to ensure living wages. Reduced resource use. 

How can we motivate more investors, developers and lenders to take into account these topics?  Ultimately, I think it is a shift in focus. Change the questions that are being asked to make them more meaningful and so they are tracking a higher level of significance. Instead of focusing on whether or not returns have increased over the quarter (or some other short period of time), we need to be asking whether or not we are building adaptable and resilient buildings, cities and systems. Are we creating assets that can withstand and flourish given the future.

We are facing unprecedented change - we have narrowed our perspectives needlessly and frankly, to our own detriment. When we only look at investing as what shows up on the most recent P&L, we shrink our field of vision, limiting our opportunities, opening ourselves up to risk and excluding some of the most important factors and consequences. It provides an inadequate and incomplete view of investment returns. And it keeps us in a mode of extraction - which as we all know is unsustainable. (The healthiest plants and food grow in soil that has been tended and replenished.) By expanding our focus, it is easier to see the true cost and profit, which allows us to optimize our investment decisions. Ultimately the capital markets and our investments can be a positive force for change.

Opportunity Zones & Impact

I had an interesting discussion this week about Opportunity Zones and the challenges many communities have simply due to the compressed timing the legislation imposes. There are so many places where a given community hasn’t really thought about what they want and are just getting started, where the local skill and capacity is limited, technical assistance is needed, investors are reluctant to take a risk and there are few shovel ready projects that have already made it through community engagement. I fear without some changes (extension) to the legislation, many communities are going to miss out on the opportunity.

I got pulled in early into the O-Zone conversation in January last year when EIG reached out to get a perspective on the legislation might play in real estate. At the time I was the Chair of the Responsible Property Investment Council. Since then I’ve been working with investors/developers and cities in developing their O-Zone strategies and O-Funds. I’m presently working on 4 funds - 2 project specific (mixed-use - community library, housing, maker space; the other a multi-family project), one a local/regional fund for the Rocky Mountain West and the final one for our work with the Lotus Campaign - investing in workforce housing and making units available for people experiencing homelessness.

I’m working to integrate a series of metrics for investors that include a variety of social equity, community outcomes and environmental touch points so that when they make investment decisions, they have a sense of how the investment aligns with their values. However, that doesn't necessarily address how a community can ensure the incoming capital meets those same needs. Looking forward to having some further conversations with communities on how they can optimize their O-zones.