Socially Responsible Property Investment Still on the Drafting Table

by William Baue, SocialFunds.Com

Socially responsible property investment (SRPI), which has established a foothold abroad with the Commonwealth Property Office Fund in Australia and the Morley Igloo Urban Regeneration Fund in the UK for example, has yet to gain traction in the US. However, indications abound that this sub-field of socially responsible investing (SRI) may soon produce investable products.

Gary Pivo, a professor of urban planning and natural resources at the University of Arizona, is acting as one of the architects helping to draft this new discipline in the US. He has published a research paper on SRPI in the Fall 2005 issue of the journal Real Estate Issues, and another paper this year in the International Real Estate Review. The latter paper, co-authored with Paul McNamara of Prudential Property Investment Managers, is based on their work in helping create the Principles for Responsible Investment and the Responsible Property Investment Working Group of the United Nations Environment Programme Finance Initiative (UNEP FI).

The former paper surveys the current landscape of SRPI, mapping five possible future paths. First is the launching of publicly-traded Real Estate Investment Trusts (REITs–which pool property investments similar to the way mutual funds pool securities), and second is to invest in publicly-traded real estate companies focused on sustainability. Third is private SRPI funds for institutional investors, fourth is an SRPI "fund of funds" that invests in multiple private funds as a way of making SRPI accessible to individual investors. And fifth is socially screened real estate mutual funds comprised of REITs or real estate stocks.

Also possible is the application of SRI screens to existing investments to see if they would meet SRPI criteria. Determining what such criteria would be, however, is complex. Prof. Pivo points out that SRI screens such as those applied by Sustainable Asset Management (SAM) Research for inclusion in the Dow Jones Sustainability Indexes (DJSI) typically assess company-wide social and environmental performance. However, existing assessments of real estate such as US Green Building Council (USGBC) Leadership in Energy and Environmental Design (LEED) and Environmental Protection Agency (EPA) Energy Star programs certify individual properties.

"The LEED and Energy Star programs may already have created an expectation among SRI investors that in real estate, social and environmental issues should be evaluated at and aggregated up from the property level," Prof. Pivo writes in the Real Estate Issues paper.

Also at issue is the actual criteria for determining best practice on social and environmental issues.

"Is high rise better than low rise?" asks Prof. Pivo. "Is housing better than shopping?"

"Is mixed use better than single use?" he continues. "Is new urbanism better than shopping malls?"

The paper ends with five recommendations, starting with the identification of where SRI and real estate investment currently overlap.

"The University of Arizona and the Boston College Institute for Responsible Investing are planning a meeting to bring together leaders from the real estate and the SRI industries to talk about current investment opportunities, new product development, and metrics for reporting on the social and environmental characteristics of real estate investments," Prof. Pivo told

The SRI community has already started taking its first steps toward SRPI. The September 2005 SRI in the Rockies conference included a session entitled "Is There a Green Real Estate Investment Trust In Our Future?" with a presentation by Prof. Pivo. It also included a presentation by Leanne Tobias of Malachite LLC, which focuses on green or sustainable real estate, and another by Richard Imperiale of the Forward Funds Uniplan Real Estate Investment Fund (ticker: FFREX), which applies SRI criteria.

"Three dozen people at the meeting signed up to follow up on the topic," said Prof. Pivo. "Discussions are ongoing by people who were there on at least two new investment products: a green REIT and a land conservation fund for ranches and other working landscapes."

Discussion is also ongoing on the newly-established responsible property investment listserve hosted at the University of Arizona.

"Since being launched in November, it has grown to 130 members from eight countries," said Prof. Pivo. "One of the most interesting threads so far was on green mortgages."

The closest thing to a green mortgage currently is the energy-efficient mortgages offered by Fannie Mae (FNM), according to one listserve participant. Another cautioned the green mortgages could prove counterproductive by increasing loan amounts to fund bigger houses that may not end up reducing overall energy consumption.

Prof. Pivo also hopes to fuel the socially responsible property investment market as a participant and not just an academic as a founding partner in a new property investment firm. SRI investors may soon have options to fill this current void in their portfolios.

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