Incorporating environmental, social and governance measures becomes increasingly relevant for the private real estate industry as it deals with the challenges posed by covid-19.
“Aside from the negative health and economic effects, the crisis is showing just how big the impact of economic activity is on our environment,” Peter Epping, senior managing director at Hines and manager of its Hines Pan-European Core Fund, told sister publication PERE.
One example is the impact of economic activity on air pollution. According to the World Economic Forum, just two weeks after the UK’s nationwide lockdown was announced on March 23, nitrogen dioxide pollution – which is produced by diesel vehicles and industrial activity – fell by as much as 60 percent compared with the same period in 2019.
Epping added: “While that shows the conflict that exists, it makes the urgency for action even more significant. Therefore, it is a key goal for Hines and the HECF to push even more in the post-covid-19 world.”
The Houston-based private equity real estate manager recently completed the acquisition of 121 ‘green’ apartments in Copenhagen from developer Bonava, on behalf of HECF.
The new homes, located in the Østerbro district in the east of the city, had been part of Bonava’s Trikotageparken development, which has been recognized by the Nordic Swan Ecolabel certification scheme for high levels of sustainability. The project, which includes one-, two- and three-bedroom apartments for rent, encompasses 10,508 square meters (113,107 square feet) across three buildings and is set to be completed in Q4 2021.
“Our investment in Copenhagen’s Trikotageparken reflects our ambition to increase the exposure of the HECF in the living sector within key city center locations across Europe,” said Epping. “As we continue to expand our residential portfolio, we will focus on high-quality investments which combine strong real estate fundamentals and the highest sustainability and ESG criteria.”
Another example of a recent investment with ESG criteria was the acquisition in March of a prime consented office scheme in London’s Covent Garden from corporate pension fund clients of Savills Investment Management, on behalf of the Hines European Value Fund 2.
The refurbishment program, set to begin later this year, will reposition four interlinked buildings into one consolidated modern office property, with street-level restaurant and retail amenities. The building, according to Hines, has been designed to achieve a BREEAM ‘excellent’ rating, a WELL Building Standard accreditation as well as a WiredScore certification for enhanced digital connectivity standards.
According to Epping, investing in highly sustainable real estate is a form of “future-proofing,” particularly during periods of crisis.
In times of upheaval, downside protection of investment portfolios becomes even more important, he said: “ESG encompasses issues such as resilience of assets and their operations, particularly in times of crisis. Having a strong and robust business continuity plan as a firm and within the operations of our buildings is even more relevant during the current scenario.”
He added that investors apply a higher degree of scrutiny to new investments during and after crisis periods and that ESG was emerging as one of the criteria that they value most highly: “Ratings such as the Global Real Estate Sustainability Benchmark not only focus on energy consumption and policies in place but also monitor how closely assets are managed. Having a high rating in GRESB and implementing ESG-related improvements provide a proxy for the control that landlords have on their assets, including property management, data collection and technical aspects.”
Epping told PERE that although investment decisions are not solely made on “green” targets, it is not acceptable anymore to deploy capital into opportunities without considering the ESG impact of such investments.
Far from just creating social value, real estate market participants are increasingly recognizing additional long-term value from sustainable investments. “ESG also encompasses the health and well-being of our employees, occupiers and building partners,” said Epping. “Ensuring their safety and well-being is particularly relevant in the current situation and can strengthen the relationship with building partners even further while more swiftly achieving a successful outcome.”
Aleksandra Njagulj, global head of ESG at CBRE Global Investors, agrees that ESG should retain or even gain in importance in times of crisis, as she recently told sister title Real Estate Capital.
“We have seen evidence of this in recently released data where ESG equity traded funds see a steady increase practically unaffected by the [covid-19] crisis,” she said. “Even more importantly, high ESG performance directly tackles climate-change-related risks.”