Metrics for Responsible Property Investing


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Metrics for Responsible Property Investing

  1. 1. T] EN M M O C R FO FT A R [D ULI Paper for Presentation at 2009 ULI Fall Council Forum Metrics for Responsible Property Investing: Developing and Maintaining A High-Performance Portfolio November 2009
  2. 2. Lisa Michelle Galley Founder and Managing Director Galley Eco Capital Jean Rogers Principal Arup David Wood Director Responsible Property Investing Center Boston College Acknowledgements The authors are indebted to Scott Zengel of Bay Area Council and Nick Stolatis of TIAA-CREF for their willingness to participate in the case study and to test the RPI metrics in the real world. Their insights were invaluable. The authors would also like to thank Andrea Fernandez of Arup for her tremendous assistance in researching indicators, interpretation of data, and editing.
  3. 3. Contents 1 Introduction 5 2 Institutional Real Estate’s Volatile Investment Environment 6 2.1 RPI in the Contemporary Real Estate Environment 7 2.2 Impacts of Sustainability on Institutional Real Estate 10 3 New Metrics for a New Era 12 3.1 Gaps in current reporting efforts 12 3.2 Proposed metrics for RPI evaluation 13 3.3 Use cases for RPI metrics 13 3.4 Discussions of proposed RPI metrics 15 3.5 Portfolio characterization 20 3.6 Case Study Results 21 4 Implication for Reporting and Management 23 4.1 Adapting for higher performance 23 4.2 High-Performance Portfolio Dashboard 25 5 Notable Benefits and Conclusion 26 Tables Table 1: Sustainability Impacts on Real Estate 10 Table 2: Proposed RPI Metrics 14 Table 3: Portfolio Characterization 20 Figures Figure 1: Institutional real estate’s performance, 6 as measured by the NCREIF Property Index as of 12/31/08 Figure 2: “Market standard” fund performance characteristics 9 Appendices Appendix A: Metrics Case Study – Acquisitions 27 Appendix B: Metrics Case Study – Portfolio Management 35
  4. 4. 1 Introduction Responsible Property Investment [RPI] is an These metrics must be rigorous enough emerging investment strategy and discipline to allow for substantive analysis, but concerned with integrating environmental, flexible enough for investors to tailor them social, and governance [ESG] data into to their specific needs. They have to be investment decision-making. Proponents comprehensive enough to capture real point to increased regulatory risk, resource performance, but simple enough to be usable constraints, changing consumer preferences in the context of investments in the real world. and demographics – all as they relate to the These challenges will require collaboration, increased importance of environmental and and a willingness to test ideal systems in the social issues -- as drivers of change in the real day-to-day world of investing estate investment industry. This paper is a preliminary effort to address To date, however, the industry has yet to these challenges. After reviewing the state of develop standards to evaluate ESG data real estate in the wake of the recent financial that compare to its traditional evaluation of crisis, and the role of RPI in that context, we portfolio performance. The emergence of offer a set of sample RPI metrics, along with third-party standards offer investors some 2 case studies with actual investors (TIAA- guidance especially on environmental issues, CREF and the Bay Area Fund of Funds). Our but tend not to cover the range of RPI. In hope is to catalyze a discussion on how to any case, there has yet to develop a fully make metrics that are rigorous and useful. We 5 elaborated set of issues, vocabulary, and want to raise the profile of this issue among measurement that allow investors can use to industry professionals, and draw from their evaluate whether their portfolios are achieving expertise and experience to develop a system their environmental and social goals, or that that helps the industry face the imperatives of enable investors to evaluate the relationship key environmental and social challenges, and between ESG data and financial performance. capitalize on the opportunities that will come One important step along these lines will with a transforming economy. likely be the development of an industry- Real estate investment plays a fundamental standard set of metrics to evaluate ESG role in determining how society uses performance that allows investors to measure resources, how the built environment performance across their own portfolios, to shapes social life, how economic activity enhance their acquisition and disposition can be sustainable over time. As an asset decisions, and to report their performance to class, real estate offers especially tangible investment partners, regulators, civil society demonstrations of the importance of ESG organizations, and other stakeholders. analysis in creating value for investors and For ESG analysis to become industry best society alike. We believe that a robust practice, some system of measurement will metrics system can help shape the market need to establish rigorous standards that hold to better create sustainable outcomes for all investors accountable for their claims, and stakeholders. offer investors the capacity to favor higher performing buildings and portfolios in practice.
  5. 5. 2 Institutional Real Estate’s Volatile Investment Environment Institutional real estate is in the midst of a major downturn, as real estate performance has both driven and followed the plunge in US and worldwide economic activity. At their peak, annual real estate returns for tax-exempt property owners (governments, pension funds, etc), ranged from 14%-20% from 2003-20071. 1 Data from the National NCREIF Property Index Total Return Council of Real Estate Income Return Investment Fiduciaries as 8% Capital Return of 12/31/08 (www.ncreif. 6% org; accessed on 4/6/09). 4% The graph shows the Quarterly Return 2% returns for the NCREIF 0% Property Index (NPI) for -2% the nation, which includes -4% over 4,200 properties at -6% a market value exceeding $150 billion. The NPI -8% income graph shows -10% the return from the Net -12% Operating Income (NOI) 78 82 86 90 94 98 02 06 for the properties and the Year NPI capital graph shows the return from gain in Figure 1: Institutional real estate’s performance, as measured by the NCREIF Property Index as of 12/31/08 value net of any. Returns are calculated by NCREIF 2008 will be remembered as a year where Hidden Rise of Un-Sustainability quarterly based on appraised values and are 6 property returns for institutional investors The current credit crisis has exacerbated shown on an unleveraged basis as if properties were ended at an estimated -6.46%, reflecting other problems within commercial real estate all purchased on an all the impact of a national credit and housing –hidden during the boom years -- that have cash basis. crisis, and speculative excess tied to real only recently come to light. estate investment. It is unclear to what extent During the real estate boom years of 2004 real estate investment will track economic to 2007, low interest rates, easy liquidity and recovery, given the size of the bubbles that increased debt leverage had combined to have popped. help inflate real estate prices. Many investors Most in the economy clearly recognize focused on these speculative returns at the that credit and investment capital is highly expense of attention paid to the real rise in constrained and an easy credit environment energy and water costs on their properties. will not be back for a long time. Real estate During that period, rising (and fluctuating) owners must become experts at economic energy costs, particularly within the past 36 sustainability; conserving and organically months, have been increasing consumer growing cash flow though long-term cost of living and weakening the business investment strategies, while becoming more sector through higher costs of operations. efficient users of capital the next several years In addition, fuel costs for transportation to come. have also played a key role in the real estate crisis, impacting with greater force on those properties in suburban areas or locations with poor access to public transit. The potential long-term risks of exposure to climate-related regulation, changing consumer sentiment, and even the simple operating costs of buildings in their portfolios have become more apparent in recent years. As the short term orientation of real estate markets has suffered, the long term implications of sustainability have risen in importance.
  6. 6. 2.1 RPI in the Contemporary Real Estate Environment The very widespread problem of energy, More comprehensively, the built environment 2 Mansley, definition of Responsible Investing water, and fuel supply and price risk helped shapes fundamental decisions about where to propel environmental concerns to the and how to live, social inequity in the provision national agenda and even partially shaped the of housing, and access to public and private outcome of the 2008 American presidential services. election. Stakeholders from regulatory Responsible Property Investing (RPI) is a agencies to consumers have become more response to increasing public concerns aware of the negative impact of buildings on about the environmental and social the use of natural resources and the related impacts of buildings, in conjunction with effects building siting and operations have on a growing awareness among investors communities. that environmental and social analysis can Widely cited statistics note that 40 percent enhance their ability to assess building and of primary energy use, 72 percent of U.S. portfolio performance over the long term. electricity consumption, 29 percent of RPI facilitates a more comprehensive carbon dioxide emissions, and 13.6 percent engagement between investors, their of potable water consumption are due to properties, and tenants by “taking into buildings. account social, ethical and environmental 7 Against this backdrop, buildings constructed factors in the selection, retention and using green building principles are present a realization of investment, and the responsible compelling alternative: use of rights (….) that are attached to such • Energy use in green building is 29 to 50 investments2. Responsible property investing percent less than non-green counterparts. has emerged in response to the need for investors to adopt responsible investing • Green buildings use an estimated 40 principles, which are more tailored for property percent less water. investments. • Carbon dioxide emissions in green buildings are reduced by 33 to 39 RPI takes into account the social, percent. • Solid waste attributable to green buildings ethical and environmental factors in the is reduced by 70 percent. selection, retention and realization of investment, and the responsible use of rights attached to such investments
  7. 7. The United Nations Environment Programme These principles highlight the range of RPI Finance Initiative Property Working Group issues, and also create a framework for has defined RPI in terms of social and applying ESG analysis to the real estate environmental dimensions of real estate asset class. In practice, these issues have investment, including: been treated as vital by many investors – RPI • Smart Growth (e.g., transit-oriented offers a means to bring them together into a development, walkable communities, coherent framework. mixed-use development Industry Practice Today • Social Equity and Community The application of responsible property Development (e.g., affordable housing, investing principles to institutional real community outreach, fair labor practices, estate portfolios can best be framed by workforce development) understanding the current context for property • Urban Revitalization (e.g., goods and investment and investment metrics here in the services provided to underserved United States. communities, infill development, flexible The Real Estate Roundtable estimates the interiors, brownfield redevelopment) size of the US commercial real estate market • Energy Conservation (e.g., energy efficient at $5 trillion, with approximately $2.5 trillion buildings, conservation retrofitting, green in assets owned by institutional investors. 8 power generation and purchasing) The balance is owned by corporations. • Environmental Protection (e.g., water Institutional investors can be public funds, conservation, recycling, habitat protection) union/multi-employers, foundations, endowments, healthcare, insurance • Worker Well-Being (e.g., plazas, indoor companies, high net worth individuals or air quality, childcare on premises, mutual funds. handicapped access) Those investors utilize a diverse array of • Health and Safety (e.g., property security, financial structures to achieve their investment avoiding hazards, first aid readiness) objectives, such as equity, fixed income, • Local Citizenship (e.g., aesthetics, non-US equity or fixed income, balanced minimum neighborhood impacts, real estate or alternative investments. Each considerate construction, stakeholder of these financial structures have distinct risk engagement, historical preservation) and return profiles. • Corporate Citizenship (e.g., regulatory compliance, sustainability disclosure, independent directors, and adopting of independent voluntary codes such as LEED, Energy Star, Green Seal, UN Principles for Responsible Investment, and Global Reporting Initiative)
  8. 8. Fund Life Cycle Performance Diversification Diversification Summary Professional real estate investment operates Property type Existing buildings Year through the contract between the institutional Geographic Redevelopment Quarter investor and the asset manager, also Property size Development Income called the real estate manager. The goal of Land Appreciation the management contract is to establish Gross total return relationship guidelines, performance goals, Net total return and regulate investment discretion. The Dividend paid out typical selection criteria that institutional investors use to select real estate managers Figure 2: “Market standard” fund performance characteristics are: • Experience and stability managing real In other words, contemporary institutional real estate estate investing happens through a diverse array of financial vehicles, managed by real • Competitiveness of fund performance estate managers. These arrangements are • Competitiveness of fees considered ‘market standard’ because they • Appropriate fund diversification and use of are thought to encompass nearly all of the leverage most relevant criteria and processes needed to obtain market or above market rates of The classic measures of success, which return on an investment of institutional capital ultimately determine whether the institutional 9 within real estate. investor is receiving satisfactory performance, appear in portfolio characteristics below RPI Metrics as Enhanced Investment and in Figure 2, which are the most direct Analysis measures of fund performance: The endgame of using metrics is to Portfolio Characteristics provide real estate market participants with transparency, benchmarking, risk assessment, 1. Fund strategy: core, value-added, performance evaluation, and an unbiased opportunistic, etc. way to compare asset managers’ investment 2. Legal structure and fund type: closed-end, efforts. open-end, private REIT, etc. The likelihood or reaching that endgame, 3. Number of properties however, relies on one fundamental, largely 4. Use of leverage unspoken, assumption, which drives many of the explicit agreements and assessment parameters – that the current set of information used by institutional real estate investors is complete, and delivers predictable forecasts of future performance. In other words, the key assumption within the system of performance criteria and measurement outlined above is that there are no new issues or factors beyond that highlighted above, which would affect the business system of real estate including the results (returns) of the investment process. In the next section, we examine why that is no longer the case.
  9. 9. 2.2 Impacts of Sustainability on Institutional Real Estate Many experts have written extensively about social awareness about sustainability in global sustainability challenges and the general has sharply impacted institutional real impacts are now being observed in many estate in several interrelated ways, as shown kinds of systems. The increased global and in the table below. Sustainability-related Drivers Impacts on Institutional Real Estate Opportunities Challenges Global natural resource depletion in particular “Green” or resource-efficient buildings Potential obsolescence of non-green buildings fossil fuels and water. Sustainable mixed use developments Unreliable energy supply and pricing Commissioning and retrofitting green Unreliable water supply and pricing Increased building construction and costs Increased regulation Increased global atmospheric carbon levels Zero-carbon eco districts. Meeting zero carbon targets at building scale Financing renewable on-site energy generation Negative impacts of suburban land development TOD, urban-infill properties Land use restrictions patterns Adaptive reuse 10 Dearth of clean, economical public transportation Increased value of TOD sites Cost of public transit Demographic trends toward urban environments TOD, urban-infill properties Increased competition for prime urban locations Growth constraints due to municipal utilities Self sufficiency:getting off the grid for power Increased operating costs for power and water and water Increased risk of business interruption due to New financing tools through ESCOs power failures Limitations on development OR requirement to fund adequate water and power supply facing limits on supply Financing investment in sustainable water and energy infrastructure Building energy labeling requirements Competitive positioning for owners of Energy Heightened legal compliance associated with Star rated buildings disclosure Market leasing and sales risk, if disclosures are unfavorable Impending carbon legislation Monetization of carbon reductions from energy Carbon tax on properties in the near to mid-term efficiency measures Utilities facing renewable portfolio standards On-site generation can be win-win Contract risks (33% in California) Space requirements for on-site generation Insurers overexposed to climate chvange risks Green building policies offered through some Higher insurance costs for a host of business insurers (Fireman’s Fund, Traveler’s) Increased liability issues attention on indoor environmental health Withdrawal of insurers from some real estate Lower insurance premiums for implementing markets green and/or energy efficient approaches Some green building techniques perceived as “risky” Increased attention on indoor environmental Green buildings with healthy materials, Decrease in tenant satisfaction health and good access to daylight and views Legal risks of poor indoor air quality Table 1: Sustainability Impacts on Real Estate
  10. 10. The above are sustainability-related forces The presence of these new forces within the which constitute risks and opportunities real estate universe means that institutional for institutional real estate investors. At the investors and their managers will have to portfolio level, these risks and opportunities expand their measurement and definition of will express themselves in the following performance to include an assessment of property performance features: these sustainability-related factors. By doing • Increased or reduced revenue and overall so, they gain an understanding of portfolio cash flow performance which reflects important new trends and comes closer to what they always • Rent growth, occupancy rates and strive for: transparency, objectivity, and ongoing investment cost management credibility within the new context of investing. • Asset operating expense efficiency and In order to create measurements that are 11 cost escalation management meaningful across regions, sectors, and • Depreciation and obsolescence investors, there is a need for a relatively • Risk profile of target properties uniform set of additional metrics which are better suited for the new issues facing real • Discount and cap rates applied to estate investing. properties To the extent that a real estate portfolio may benefit due to the presence of these In 2008, the Global Reporting Initiative undertook a review of major impacts, they constitute portfolio performance sustainability reporting efforts in the construction and real estate opportunities. Nonetheless, most of today’s sector. It aimed to understand the relative frequency of which key “market standard” portfolio performance sustainability indicators were measured and reported by leaders metrics do not directly account for any of in the field. Among those already producing detailed sustainability these forces, meaning that sustainability- reports, the review shows that portfolio-level performance is under- related opportunities and risks that may be reported and that no standard exists for metrics at this level. The present within these portfolios currently lie reporting frequency of identified indicators varies widely across outside the real estate business system, the sample of investors, making valuable cross-industry analysis unmeasured. impossible. Even many of the leaders in the industry report much more on CSR and philanthropic issues than those of portfolio performance. We hope that the GRI Sector Supplement for construction and real estate, now in development in coordination with a quorum of participating industry leaders, will address these concerns before its anticipated release in 2011.
  11. 11. 3 New Metrics for a New Era 3.1 Gaps in current reporting efforts A number of initiatives, both industry-wide and Showcasing exemplary projects can be investor-specific, have attempted to quantify helpful to outside parties and a great method and report on sustainability metrics outside of generating positive feedback, but should the traditional scope of portfolio analysis. not be done without providing relative These include the Global Reporting Initiative performance with respect to both the rest and Principles for Responsible Investing at the of the portfolio and the industry as a whole industry scale, and, for instance, the Investa (where possible). For example, two pages Sustainability Indicators and CBRE Standards of discussion in a report of a single LEED- of Sustainability at the individual company Certified building may mask the fact that the scale. majority of the portfolio consists of business- To varying degrees, these efforts track (or as-usual properties. A unified system of aid in tracking) data on natural resource use, RPI metrics to measure performance at building performance, environmental and the portfolio level would prevent these community impact, and other key indicators. discontinuities and help establish standards Many of them focus on (or are derived from) and best practices for high-performance an understanding of building performance, portfolios sector-wide. 12 conducting analysis at an asset level rather than a portfolio level. In the meantime, In 2004, Paul Hawken studied the makeup of socially responsible gaps at the portfolio level are present to the investment (SRI) funds against traditional funds and determined extent that sustainability data may be both that an SRI portfolio had almost identical characteristics and inconsistent and misrepresented, keeping holdings as non-SRI investments. Furthermore, he found that this valuable information from reaching its there were no standards, definitions, or formal codes of practice full potential for investors, asset managers, for SRI. To continue to remain relevant, portfolios aiming for RPI stakeholders, and industry analysts alike. achievement should have a markedly different, more sustainable The field of RPI lacks a powerful, standardized mix of assets than non-RPI portfolios. This difference should be set of portfolio-level metrics which is quantitatively demonstrable, an aim which this system of metrics recognized and used by investors and can help to achieve. managers across the real estate industry, thereby defining and giving credibility to the practice of RPI. Such a system would not RPI metrics, therefore, must use only create improvements in building and vocabulary that is flexible enough to portfolio performance, but would also allow for benchmarking and development of a allow for a variety of financial, social and database of “comps”. Currently, reporters environmental advantages, and still be are selective about which metrics to include or exclude, and data is not comprehensive able to differentiate responsible property or comparable from one portfolio to investing from more conventional real another. Even those firms leading the field of responsible investing and sustainable estate projects asset management may report only one-off examples of buildings or initiatives which cannot be extrapolated to obtain a view of portfolio level performance.
  12. 12. 3.2 Proposed metrics for RPI evaluation The scope of RPI is broad. It includes, for Building off of the ten elements of social and example, “deep green” projects that focus environmental impact and opportunity in real on poor communities or environmentally estate as defined by the UNEP FI Property fragile areas, energy efficient buildings that Working Group, we have developed a set offer clear financial advantages through of 26 quantitative metrics that can help reduced operating costs, affordable housing investors to find, create and articulate value projects that draw upon local tax credits, through improving the economic, social, and and now carbon reduction projects that environmental profile of their investments. We hedge risk and result in renewable energy recognize, of course, that individual investors certificates. RPI metrics, therefore, must use will tailor their adoption and use according to vocabulary that is flexible enough to allow for their specific investment strategies. These a variety of financial, social and environmental metrics were selected for their ability to allow advantages, and still be able to differentiate real estate professionals to better address responsible property investing from more risks and identify opportunities for long-term conventional real estate projects. value creation. The metrics take two forms to support different use cases: acquisition and portfolio management, as described below. 13 3.3 Use cases for RPI metrics We envision three primary uses for RPI Reporting can happen in both instances: metrics in practice: informing acquisition characterizing the nature of an RPI decisions, enhancing portfolio management, opportunity, or demonstrating for stakeholders and reporting performance. Metrics can be how investment values have been put into used to guide investors across the life cycle practice in an RPI portfolio, and how a of responsible property investment, from particular investment strategy can create value existing buildings to new development, from over time. acquisition to disposition. Our case studies (see Appendices A and Because of their different purposes -- at the B) test the validity of these use cases, and acquisition stage (evaluation of one property) establish links to value, where possible. or at the level of portfolio management (evaluation of the portfolio of assets in its entirety), RPI metrics take different forms depending upon the use case.
  13. 13. RPI Metric Acquisition Portfolio Management Energy Conservation and Carbon Management Energy Use Intensity For property, BTU/sf Average across portfolio, BTU/sf Total Annual Energy Use For property, BTU/yr Total across portfolio, BTU/yr Renewable Energy On-site generation at property location, % of total On-site generation across portfolio, % total demand demand CO2 Emissions Intensity From energy use, for property, pounds/sf/yr Average across portfolio, pounds/sf/year Energy Star Rating Energy Star Score for Property Average Energy Star Score across Portfolio Retrocommissioning Performed last 24 months, yes/no Properties on regular commissioning schedule, across portfolio, % Environmental Protection Water Use Intensity For property, gal/occupant/day Averaged across portfolio properties, gal/ occupant/day Total Annual Water Use For property, MG/yr Total for portfolio, MG/year Recycled Water Use On property, % of total water use Average across portfolio, % Water Management Fees For property, combined water and wastewater Total for portfolio, $/yr charges, $/yr Solid Waste Generation For property, tons/yr Total for portfolio, Million tons/year Diversion Rate For property, % diverted from landfills through Average across portfolio, % recycling programs 14 Green Leases In place on property, yes or no Properties in portfolio operating under green lease structures, % Urban Revitalization and Adaptability Brownfield Yes or no % brownfield properties in portfolio Infill Yes or no % properties in CBD in portfolio Smart Growth and Transit Oriented Development Walkscore Rating Rating for property Average rating across portfolio Health and Safety Risk Management Plans Prepared for property, yes or no % properties in portfolio with risk management plans in place Vulnerable Location Yes or no % properties in coastal areas and/or earthquake zones Worker and Tenant Well Being Tenant Satisfaction Survey Score on Kingsley survey Average score across portfolio on Kingsley Survey Social Equity and Community Development Benefits to CRA area Property located in a CRA census tract, yes or no % of properties in census tracts designated by the Community Reinvestment Act (CRA) Essential services Project brings essential services to an underserved % of properties in the portfolio bringing essential area, yes or no services to underserved areas Local Citizenship Community Engagement Community Engagement Plan in place for property, % properties in portfolio with community yes or no engagement plans in place Public space Amount of public space maintained by the project, Amount of public space maintained, as % of total sq ft area in the portfolio. Voluntary Certification Third Party Certification Property is certified under USGBC LEED, Energy % of properties in the portfolio with third party Star, or other green building rating system, yes certification underway or in place or no Governance Reporting Performance Performance of the property is reported against Is the performance of the portfolio reported against triple bottom line metrics, yes or no triple bottom line metrics? Alignment of Incentives Property manager is evaluated on triple bottom % of property managers evaluated and line performance, and it is tied to compensation, compensated on the basis of triple bottom line yes or no performance Table 2: Proposed RPI Metrics
  14. 14. 3.4 Discussions of proposed RPI metrics 3.4.1 Energy Conservation and Carbon Management Metrics relating to energy conservation An Energy Star rating of 75 is needed to get and renewable energy generation have an Energy Star certification and for LEED- the advantage of being tied directly to EB. 85+ is good, and 90+ is very good. The reduced operating costs. Therefore, it is no score is essentially the percentile compared to coincidence that the metrics surrounding the rest of the EPA database, so 95% would building energy use and associated mean only 5% of buildings perform better. greenhouse gas emissions have been the For an office building (based on Commercial focus of many green building initiatives Building Energy Consumption Survey, or CBECS to date. However, these are generally data) typical energy use (energy and gas) is in communicated as gross totals across the range of 90 kBtu/sf/year (electricity use of investments rather than in normalized or 17 kWh/sf/yr = 59 kBtu/sf/yr plus gas use of percentage terms which allow comparisons 32 kBtu/sf/yr). Of course, energy use is climate between properties and between portfolios. specific, but a well designed low energy office When evaluating a portfolio, it is most useful building might achieve 30 to 50 kBtu/sf/yr total. to set targets and interpret performance by A net zero energy building might beat code 15 building types and climate zone. Recently baseline by 60% and then make up the rest with enacted EPA GHG reporting requirements renewable and offsets. While energy intensity and legislative initiatives promoting net zero is a metric that can identify underperforming buildings (California Energy Commission) will buildings, total energy use for the portfolio is drive adoption of metrics such as these for also important. This indicates the magnitude of portfolio management. the value opportunity for even small increases in energy performance. RPI metrics take different forms depending upon the use case: acquisition or portfolio management
  15. 15. 3.4.2 Environmental Protection The management of other resources used In San Francisco, commercial rates for potable 4 http://www.buildings. com/ArticleDetails/ or generated by properties, namely water water and wastewater are escalating, with rates tabid/3321/ArticleID/6461/ and waste, is also a key issue for investors to proposed at approximately $10.00 per ccf Default.aspx consider for their portfolio. These parameters (hundred cubic feet = 748 gals)6 for provision of 5 http://www.seco. have direct links to value, with reduced water water and wastewater services by 2012. So, waterconservation.pdf potable use, reduced wastewater and solid a 30 storey office building with a floor plate of 6 SFPUC 2009-2013 waste volumes resulting in reduced operating 30,000 sf could save over $50,000 per month proposed water and wastewater rate package costs. by investing in conservation and efficiency 7 California Integrated According to the DOE, commercial buildings measures. Waste Management Board, Estimated Solid consume 88% of the potable water in the US4. Solid waste generation can be 0.08 lb/sf/day Waste Generation A typical office building can use up to 60 gals/ or 1.24 lb/ employee/day7 for a typical office Rates for Commercial Establishments, sf/year, or 70 gals/person/day for indoor use, building. However, diversion rates of 75 % or http://www.ciwmb. cooling, and irrigation5. This is compared to more can be achieved for an office building WasteGenRates/ a highly water efficient building, which can with robust sorting, recycling, and composting Commercial.htm achieve up to 10 to 15 gals/sf/year or gals/ programs in place. With solid waste collection 16 and disposal rates approaching $150/ton, the person/day through water efficient fixtures, xeriscaping, and use of recycled water. While magnitude of the value opportunity for even potable water savings represent significant cost 50% diversion significant (for our hypothetical savings, wastewater charges can be double 30 storey office building it could be over to quadruple water charges in some areas $1M per year). Green lease arrangements tie with limited capacity and aging infrastructure, tenant efforts to conserve resources directly or communities with new wastewater plants to the savings realized by such efforts, so that that must be amortized. Therefore, reducing investors, managers, and tenants alike each wastewater volumes is even more important to have motivation to maximize reductions. the bottom line that reducing potable water use. 3.4.3 Urban Revitalization and Adaptability Focusing investments on sites and properties of space as opposed to conventional sprawl. which return brownfield sites to productive Some real estate funds invest exclusively use or which take advantage of under- in brownfield properties (e.g. Cherokee). utilized urban space reduces the need for However, most funds do not report the scale greenfield development and encourages land of these types of investments at the portfolio conservation. Additionally, government and level either as a percentage of properties or a market incentives are increasingly directed total square feet in the portfolio. toward investments which make efficient use
  16. 16. 3.4.4 Smart Growth and Transit Oriented Development Compact, walkable communities are the Similar to the manner in which some portfolio 8 http://www.u.arizona. edu/~gpivo/ solution to some of our biggest shared managers aggregate EnergyStar ratings and Walkability%20Paper%20 challenges, from childhood obesity to social establish a portfolio wide target, walkscore 8_4%20draft.pdf isolation, from crash deaths to disappearing ratings can also be aggregated across a farmland, from the high price of gas and GHG portfolio, providing a useful view into the emissions, to the architectural blight of strip character of the properties in the portfolio. malls. The effect of walkability on property value Investing in areas with existing density and was the subject of a study by Dr. Gary Pivo, access to essential services and public transit professor of planning and natural resources is one of the principal ways that RPI can and senior fellow at the University of Arizona, support smart growth. Walkscore ratings can and Dr. Jeffrey Fisher, professor of real estate serve as a proxy measure for smart growth and director of the Benecki Center for Real and transit orientation, since with density Estate Studies at Indiana University8. comes public services and “walkability”. Dr. Pivo and Dr. Fisher pulled real estate Measuring the walkscore for a property is data going back a decade from the Nation 17 a simple as putting in the address into the Council of Real Estate Investment Fiduciaries walkscore calculator ( (NCREIF) and obtained walkability ratings for The property walkscore is a number between nearly 11,000 buildings using a Walk Score. 0 and 100. General guidelines for interpreting For each of the property types analyzed – the score are as follows: office, retail, multi-family and industrial – higher • 90-100 = Walkers’ Paradise: Most errands walkability scores equated to higher overall can be accomplished on foot and many property values and net operating incomes. people get by without owning a car Comparing properties with a Walk Score of • 70-89 = Very Walkable: It’s possible to get 80, defined as “very walkable,” to properties by without owning a car with a score of 20 (“car-dependent”), the study found that the walkable properties were • 50-69 = Somewhat Walkable: Some 29 percent to 49 percent more valuable and stores and amenities are within walking generated 34 percent to 71 percent more NOI distance, but many everyday trips still per square foot. require a bike, public transportation, or car The positive correlation between walkability • 25-49 = Car-Dependent: Only a few and property value and NOI was expected, destinations are within easy walking Dr. Pivo and Dr. Fisher said in the study. range. For most errands, driving or public According to Dr. Pivo, the premiums suggest transportation is a must higher rents, occupancy and general market • 0-24 = Car-Dependent (Driving Only): demand for walkable properties. Virtually no neighborhood destinations within walking range. You can walk from your house to your car!
  17. 17. 3.4.5 Resiliency Properties that endure are inherently satisfied. Numerous studies have found sustainable. Properties can be vulnerable benefits in monitoring and improving occupant to all kinds of disasters which in turn could comfort, particularly in productivity gains. jeopardize the sustainability of the occupants Providing services such as childcare and and/or community. Additionally, rebuilding wellness programs on-site are another way damaged properties has an enormous to improve worker well-being, and aiming to environmental impact. Looking at the age institute these types of programs across a of buildings in a portfolio is revealing, as portfolio is a valuable RPI commitment. building codes have become more stringent We have chosen the property score on the over time. However, dDesigning to code Kingsley survey as a metric that can establish protects life safety, but does not protect the occupant satisfaction across a broad range asset. Therefore, a portfolio manager should of factors, and be aggregated across the assess the resiliency of the portfolio to risks portfolio. The Kingsley Index is the largest associated with climate change, earthquakes, and most comprehensive performance- other natural disasters, and security. Rather benchmarking database in the industry. 18 than establishing metrics for performance Compiled from over 20 years of analyzing the of the asset against specific risks, having performance of real estate industry leaders, a risk management plan in place serves the proprietary Index represents the standard as a proxy for performance. As investors for measuring tenant, resident, employee and become more sophisticated, they can begin client satisfaction, as well as broker relations to look into specific risk parameters with the and operational effectiveness. Many portfolio potential to affect health and safety such as managers, such as TIAA-CREF, routinely location: climate, floodplain, or earthquake conduct Kingsley surveys for their properties. zones, structural stability, life safety systems, Scoring high on occupant satisfaction has a façade integrity, or business continuity plans. direct link to value, as tenant turnover will be Adequate knowledge and mitigation of risks lower. increases disaster resiliency and overall sustainability by improving the durability and 3.4.7 Social Equity and Community longevity of properties. With certain risk Development mitigation measures in place, appraised value Three pressing and interconnected issues can be higher and insurance premiums can have caused increasing amounts of concern be lowered, thereby establishing a direct link for real estate development as urban land to value. has become scarcer: gentrification, housing affordability, and exclusionary policies and 3.4.6 Worker and Tenant Well-being practices. In low income areas, sustainability Taking an interest in the personal health and equates to jobs as a first priority. Underserved wellbeing of tenants not only demonstrates areas typically need not only buildings, jobs, a dedication to RPI, but can bring benefits transportation and green space, but access in the form of increased property values to essential services, including local markets and occupancy rates. Occupancy surveys for food and sundries, health care, places of provide valuable feedback on the occupant worship, community centers, and day care experience in a building and can lead to a services. Investment practices can help to better understand of what makes occupants bring essential services to underserved areas,
  18. 18. either through direct investment in retail, food 3.4.9 Voluntary Certification markets, or urban agriculture, or through LEED has established itself as the inclusion of space for essential services as predominant green building certification for part of a development program. By tracking new development in the United States and the ability of properties to create jobs and several other parts of the world, with its provide services for underserved areas, marketability and value being realized by many investors can lower risks associated with investors and managers across the country. regulation and community opposition as well Still, many green building initiatives and LEED as setting an example of social sustainability. certification achievements are reported as For existing assets, the two metrics we single-property accomplishments and the selected to represent this element of RPI true sustainability impacts of the portfolio include investment in a CRA area (Community remain hidden . Because of the time, Reinvestment Act), and the amount of space complexity and cost of LEED certification, allocated to essential services provided to many portfolio managers have indicated an an underserved area as part of the project. unwillingness to make LEED certification a These metrics are easily tracked across a portfolio-wide policy. Energy Star is emerging 19 portfolio but are currently under-reported, as the premier portfolio wide approach for even for funds that have a stated goal of certification of energy performance, due to targeting low to moderate income census low cost of certification, ease of use of the tracts or benefitting CRA areas. Energy Star Portfolio Manager software, and focus on value drivers. Portfolio manager can 3.4.8 Local Citizenship manage energy and water consumption for Buildings – even green buildings – often lack all buildings, help set investment priorities, a close connection to their surrounding area identify underperforming assets, verify and community. Developing Community efficiency improvements, and receive EPA Engagement plans on a site-by-site basis recognition for superior energy performance. allows projects to be sensitive to the needs TIAA-CREF, for example, has set a goal of of the citizens and areas in which they are Energy Star labeling for 100% of their office constructed. Understanding issues such as buildings. Setting a goal of certifying most site context, cultural resources and concerns, or all of a portfolio’s properties and tracking and potential for shared use agreements progress toward this goal makes a profound ensures that negative impacts and public statement of a company’s true commitment opposition to projects will be minimized. to sustainability, reaching much beyond the These plans should also include provisions demonstration of the system’s benefits in a for the public use of private space, which has single building. well-documented success in San Francisco and other cities. Across a portfolio, investing in projects that positively contribute to the community in which they are anchored creates a positive image, minimizes, risk, and improves social sustainability.
  19. 19. 3.4.10 Governance of individual assets, with the capabilities to This category represents the degree to which aggregate and view performance across the metrics have been adopted and institutionalized portfolio. Finally, incentives must be aligned within the portfolio management process. with goals, if a commitment to RPI is to be Reporting performance on RPI metrics is diffused throughout the portfolio. This means a shared responsibility between property that property managers must be not only managers and portfolio managers. Systems evaluated, but compensated, on the basis of must be put in place to track performance triple bottom line performance. 3.5 Portfolio characterization In order to make sense of the performance of a and opportunities, certain measures need to portfolio with respect to RPI metrics, portfolios be understood at the outset and tracked along 20 must be characterized according to their with the performance metrics. We have called asset composition, geography, strategy, and these attributes “characterization” indicators. other factors. This can help in benchmarking, They are quite useful for normalization and review of progress against goals and in comparison of performance data. They take a identifying trends over time. In order to have slightly different form for acquisition vs. portfolio a complete picture of performance, progress, management, and they are shown below. Characterization Acquisition (Asset) Portfolio Asset type Property sf and type (office, Asset type in portfolio by sf industrial, retail, apartment) Size Gross sf of property Total gross sf held in portfolio Climate Zone CBECS zone % property held in each CBECS climate zone NCREIF region NCREIF region for property % property held in each NCREIF region Occupancy rate Most recent quarter Most recent quarter occupancy rate occupancy rate (average across portfolio) Age of Buildings Age of building Average age of buildings in portfolio Ownership structure For building Within portfolio (direct or commingled) Property Manager (s) For building Number of property managers working with portfolio # of Distinct Properties In investment opportunity In portfolio Strategy Core, value-added or % of portfolio invested in core, value- opportunistic added, opportunistic Return on Investment Targeted for deal Targeted for portfolio Table 3: Portfolio Characterization
  20. 20. 3.6 Case Study Results The development of the RPI metrics for For many of the issues covered within the acquisition and portfolio management was realm of RPI, the acquisition decision is the undertaken by piloting an original, longer most critical stage in defining performance set of draft metrics with two real estate achievement, as improvement may depend funds—TIAA-CREF and Bay Area Fund of on outside factors (such as CRA location Funds. Individual case studies are presented or walkability) or quite simply, the metric is in the Appendix. The pilot testing sought to static (such as brownfield site or vulnerable determine if the metrics are valid, reasonable, location). It is essential then that performance informative, linked to value, and relevant for results for these metrics be at an acceptable decision-making. The metrics presented in level at the acquisition stage. this document reflect the findings of this pilot Several categories contain RPI metrics testing. which investment managers could directly tie to value either through their indication of Use of Metrics to Screen Potential decreased operating expenses or indirectly Assets during Acquisition aid in obtaining higher rents, lower vacancy or Successful property acquisition rests on selling the property at a higher price. Other equal parts judgment and execution. While categories do not link directly to asset value, 21 investment managers have to make sure rather allow the investor to property determine that their due diligence is accurate, the the correct ESG measures which must be most successful develop a reputation for in place in order to achieve maximum RPI closing in a timely and reliable fashion. Unlike benefits. portfolio management which is an on-going The key to obtaining the biggest benefits monitoring function, acquisition evaluation is a from RPI metrics during acquisition is to collection of one-off evaluations that must be conduct the review of the right metrics at accomplished within a very limited timeframe. the right stage of the acquisition process. So the use of responsible property investing Some metrics are more easily obtained metrics has to fit the timing of real estate during the pre-LOI stage, others require more acquisition. investigation and so can only be obtained Our work indicates that an investor can during formal due diligence. A few might not develop decisions and execute on a potential be available until post-closing. investment utilizing many of the proposed No matter when performance is measured, it metrics. Moreover, the inclusion of RPI is clear that the RPI metrics lend themselves metrics within the acquisition process may to the classic investment process and can strengthen a key objective: identifying the supply valuable information for both ‘classic’ areas of potential value enhancement within and triple bottom line acquisition decision the investment. making. The inclusion of RPI metrics within the acquisition process may strengthen a key objective: identifying areas for potential value enhancement
  21. 21. Use of Metrics for Portfolio Characterization and Management Managing a real estate portfolio requires Prudent portfolio managers will look to measuring and monitoring a variety of financial enter into portfolio wide contracts for fundamentals, including asset value, operating commissioning, efficiency, renewables, and income, occupancy rates, and others. Use of other measures to improve performance, ESG metrics can provide insight into risks and and use RPI metrics to track the value of opportunities across the portfolio, however, improvements portfolio wide. the burden of additional data collection The ability to benchmark ESG metrics requirements must be balanced with the portfolio wide provides deep insight. While potential insight to be obtained. Metrics external benchmarks are helpful, the ability to must point to potential actions to take, or evaluate progress over time and characterize indicate the results of those actions, or they the changing nature of the portfolio is viewed are not worth the additional cost and time. as even more beneficial. Our work indicates that RPI metrics can be incorporated into standard procedures for Once RPI metrics are in place, portfolio 22 portfolio management, even where multiple managers take a “horizontal” rather than property managers exist. The performance results help to drive strategies for improving a “vertical” approach to greening the performance across the portfolio—beginning portfolio—implementing strategies in with low hanging fruit, such as no cost and low cost measures to improve energy tranches across the portfolio efficiency, to measures that may involve more Environmental metrics are perceived as having significant capital cost but deliver greater more direct links to value, however social payback. metrics are seen as helpful in characterizing A view into ESG performance across the progress on advancing the social agenda of portfolio helps to prioritize investments that the fund, while maintaining financial returns. can be implemented portfolio wide. Our Environmental metrics are more malleable research indicates that once ESG metrics than social metrics—in other words, most are in place portfolio wide—managers take a environmental metrics can be improved over “horizontal” rather than a “vertical” approach time across the portfolio, whereas social to greening the portfolio—in other words, metrics are often determined at the point of rather than greening one building at a time, acquisition, and remain static (walkability, CBD strategies are enacted in tranches across the properties, etc.) Over time, both environmental portfolio. Moving to a “horizontal” portfolio and social metrics may help drive investment management approach is one of the best strategy and portfolio management, by setting ways to achieve value—value creation from targets for certain parameters. the initial measures can help to make the In summary, tracking RPI metrics in addition business case for subsequent measures. to standard financial metrics can provide Additionally, leveraging the size of the added insight into risks and opportunities portfolio can mean economies of scale for (useful for all investors), and can provide implementation. tangible evidence of a socially responsible investment agenda.
  22. 22. 4 Implications for Reporting and Management 4.1 Adapting for higher performance Implementing a system which tracks all of the 2 Implement a system for tracking key performance indicators recommended and updating the listed metrics for RPI will take some investment and require To ensure ease of collection and interpretation 9 Responsible Property changes to current reporting and management Investing: What the of the additional data, systems should be put leaders are doing, UNEP- processes. However, implementing these into place to ensure the metrics are tracked Finance Initiative, 2008I changes will contribute positively to long- at each property and easily aggregated to the term portfolio performance and help foster portfolio level. This should generally align well better relationships between investors and with current information-gathering practices, asset managers around RPI and sustainability though may require improved relationships objectives. Additionally, reporting across RPI with managers to be fully effective (discussed metrics will help to develop a new literacy below). Furthermore, having an individual of investment criteria and performance. or team dedicated to RPI and sustainability- Portfolio managers, property managers, related analysis and management would help and stakeholders will be able to engage in the metrics reach their full potential as portfolio a dialogue regarding value created across improvement tools. the triple bottom line through responsible investment practices. 23 In 2007, Lend Lease released a Adapting portfolio reporting processes to framework for tracking and assessing its include RPI metrics involves: progress in reaching key sustainability targets. Among these was a 1 Establishing a commitment to commitment to ensuring that energy, obtaining, managing and reporting water, and waste data are measured and on the metrics monitored in a comparable way across A concrete commitment to tracking a new all assets under management. This set of metrics at the investor level is an commitment is an essential first step important first step toward realizing benefits toward using the metrics to improve for the portfolio, as well as toward gaining performance. acceptance for the metrics industry-wide. An investment of time and resources should be put toward understanding existing available Reporting across RPI metrics will help data, establishing a baseline, benchmarking, to develop a new literacy of investment and performing a gap analysis to target key improvement areas. Examples of this type of criteria and performance action are available from industry leaders who have proven that this approach has benefits for reporting and performance9.
  23. 23. 3 Institute education programs 4 Educating appraisers and with managers to increase seeking support for increased awareness of needed changes at appraisal values where the property level appropriate Many key improvements at the portfolio level Investments which improve performance rely heavily on improvements occurring at the across key RPI metrics, particularly in areas property level – through design and siting as such as energy performance, GHG emissions, well as operations. Creating a standardized resource management, and connection to education program tailored specifically toward transit and essential services, may bring an managers, promoting awareness of new added value compared to standard assets metrics and their implications should provide without such considerations. As energy for participation and consistency across prices fluctuate and government regulations the portfolio. Effective relationships with become increasingly stringent, these benefits educated managers will greatly improve the will bring risk reduction, reduced operating accountability associated with many of the costs, and other benefits which are generally operational issues in particular, and improve not accounted for in the current standard 24 performance in the long-term . appraisal process. Though these may be Use of new KPIs to characterize portfolios difficult to quantify directly in the short term, is akin to creating a new language- a way to making a case for their incorporation into the articulate value beyond financial performance, appraised value of assets in some form is one using standardized metrics and benchmarks. of the most important ways for investors to Over time, property managers and portfolio realize their value across a portfolio . managers alike will become fluent in this new The chicken and egg situation should be language of RPI. avoided—some portfolio managers want to see clear links to value before committing the additional time and energy to reporting, In 2008, CB Richard Ellis established while reporting on these metrics over time its “Standards of Sustainability” which is the only way to demonstrate clear links create a minimum set of sustainability- to value. A common complaint of investors related actions to be completed for all who are committed in principle to RPI is that of its office buildings. These include appraisers are slow to recognize value beyond seeking ENERGY STAR certification for BAU. Appraisers are often unclear how to any eligible buildings, providing relevant value specific sustainability techniques for training at each building, and reporting atypical assets. Appraisers notoriously default internally on sustainability performance to “comps” to assess property, and the only each month to ownership. These way to create a comparable database of standards align well with RPI goals, sustainable properties is to begin reporting on and could be very powerful if applied those metrics that matter, beyond traditional successfully at the portfolio level. financial metrics for real estate valuation. This situation may improve with the emergence of the new National Green Building Underwriting Standards, a tool that can be used to assign a green value score to a property.
  24. 24. 4.2 High-Performance Portfolio Dashboard Ideally, a unified approach could also be taken Finally, in the mid- to long-term there is to visualizing, analyzing, and managing the potential for real-time information monitoring, data obtained for individual metrics, building benchmarking, and analysis across a portfolio. upon the action items mentioned above Sensors exist which are capable of monitoring to create a dashboard for monitoring and building resource use and transmitting this improving portfolio performance in the context data for analysis and visualization for every of RPI and investor and stakeholder interests. minute of the day. This technology, combined In the short-term this would take the form with regular manager reports and occupant of a standardized aggregation of data from surveys, can give an incredibly a timely and properties across the portfolio (gathered accurate picture of performance across a quarterly or monthly) which could be analyzed portfolio, and lead to new realizations and for specific trends. This data should be fairly improvements. easily accessed, particularly once relationships There are many useful software tools on the with managers are streamlined. This would market- from EnergyStar Portfolio Manager allow quick identification of the “winners” and (mentioned previously) to proprietary systems “losers” in a portfolio with respect to the RPI such as Tririga ( Tririga metrics. From this analysis, best practices combines portfolio management tools with 25 from the “winners” could be applied to portal views for property managers, and underperforming properties to maximize the facilities management functionality. This performance of the portfolio as a whole. helps to integrate goals and establish common metrics from asset to asset, which roll up to a portfolio wide view of costs, benefits, and performance.
  25. 25. 5 Notable Benefits and Conclusion The benefits of committing to RPI are Through adoption of these KPIs, investors potentially significant, but a lack of uniform can become literate in responsible property metrics which can be adopted industry- investing. RPI literacy is powerful—it wide has hindered the potential impact of enables us to finally begin to articulate the RPI on the real estate sector. By adopting connection between the values of mission the metrics listed above and following the driven investing, the actions that are taken suggested implementation program, individual by investors to shape a sustainable portfolio, investors can realize substantial gains which and the resulting performance of the portfolio. could be quantified and managed without And literacy enables us to communicate significant additional reporting burden. The our shared values in a shared language— most notable of these gains are: managers with investors; investors with • Long-term value creation through shareholders. In a changing and volatile increases in assessed value of property investment environment, there is a unique and urgent need to better understand • Greatly reduced operating costs by driving the benefits of making a commitment to environmental metrics responsible property investing. The potential • Minimization of risk in several key areas for improvements at the portfolio level is 26 during acquisition great, with benefits accruing to investors, • Improved public image and investor the industry, and society as a whole, and the confidence potential for these considerations to improve the industry as a whole is even greater. There • Improved relationship between investors is no better time for their adoption than now. and asset managers • Increased visibility and transparency RPI literacy is powerful—it enables • Demonstration of values in practice us to finally begin to articulate the connection between the values of mission driven investing, the actions that are taken by investors to shape a sustainable portfolio, and the resulting performance of the portfolio
  26. 26. APPENDIX A Metrics Case Study: Acquisitions
  27. 27. Using Metrics in Property Acquisitions: Bay Area Council Family of Funds Case Study Objectives Portfolio Strategy The objective of this case study was to trial The three properties studied are part of FOF’s Per FOF, the expected combined “target” size the draft metrics for assessing a property Smart Growth Portfolio of Funds, which are of the funds will be $191 acquisition according to the principles two private real estate equity funds, with a million. of Responsible Property Investing. The combined size of approximately $191 million. draft metrics were developed through a The Funds have a 10-year term. They are collaborative research effort between the comprised of 17 assets, totaling 1,971,172 Responsible Property Investing Center, Arup square feet commercial space and 1,066 for- and Galley EcoCapital. The findings from the sale homes and 514 rental units. trial were used to refine, streamline and evolve The Smart Growth Portfolio of Funds’ the metrics into a final set that best reflected objectives are two-fold: the RPI principles and a triple bottom line • First bottom line returns: to seek market approach to investing. returns from office, industrial, retail and The Bay Area Council Family of Funds (FOF) multifamily properties in low-to-moderate offered to participate in the trial by testing the income submarkets, generally located metrics on three recently acquired properties. along transportation corridors. The Fund 28 The study considered: believes that these assets are typically • Which RPI metrics can provide the best under-managed and that insufficient indicators of value during the acquisition organized competition plus enjoys process? the support of local government and • Which RPI metrics can be most easily community groups for investment in these applied by investment acquisitions staff areas. during the acquisitions process? • Second bottom line return: to benefit the • Would the use of RPI metrics materially communities the investments are made change the investment acquisitions in, by focusing on improving jobs, housing process? and environmental impact. The Smart Growth Portfolio of Fund’s About the Bay Area Council Family of investment parameters are to focus on LMI Funds census tracts within the nine county Bay Area The Bay Area Council Family of Funds is a region, provide equity to real estate projects regional effort developed by the Bay Area and invest mainly in value-add opportunities, Council to attract private capital into low-to- with a no more than 20% of fund capital being moderate income (LMI) neighborhoods of the made available for new development. San Francisco Bay Area. FOF acts as a Fund Sponsor and Special Member for several commercial real estate investment funds. It works with Kennedy Wilson, the Fund Manager, who manages the investments on a day-to-day basis.