Boston, MA — Proven, existing efficiency technologies -- in everything from lighting to climate control and more -- can unlock the untapped reserves of efficiency gains buried in many real estate holdings, according to a new report.
Those gains would be a boon to real estate investors' bottom lines — both direct property owners like large pension funds and smaller investors who primarily hold real estate securities — even as they make our buildings far less power-hungry and a big part of America's efforts to combat climate change.
The report, "Energy Efficiency in Real Estate Portfolios: Opportunities for Investors" (PDF), was commissioned by Ceres and authored by the responsible investment group of the investment consulting business Mercer.
The global trend toward putting a price on greenhouse gas emissions — thus ending the practice of disregarding the cost of polluting — tacks a strong business case for limiting buildings' emissions onto the strong environmental case.
But while there are clear opportunities in unlocking efficiency gains, the report also cites a flip side for real estate investors who fail to factor in efficiency: the same trend toward ending free pollution may expose unprepared investors — and fiduciaries of investment portfolios — to unnecessary investment risks. That's because expected higher energy costs, existing and possible legislation demanding increased efficiency, and competition from more efficient buildings could drag down the profits of less efficient portfolios.
"That message needs to be taken seriously by both direct investors in real estate and those who invest through real estate investment trusts and other securities," said Craig Metrick, Mercer's U.S. Head of Responsible Investment.
The report draws on key industry and academic research on building efficiency's economic impacts. It also outlines key steps and best practices for leveraging efficiency in real estate investments, and includes case studies from leading investors that show the possible positive impacts of efficiency upgrades.
For instance, in 2008 financial services giant TIAA-CREF established a goal of reducing energy use in its real estate portfolio 10 percent by 2010, and the company is well on its way to meeting that goal. The effort is already yielding $4 million a year in reduced energy costs across the portfolio, and all new buildings TIAA-CREF develops will be LEED certified.
The California Public Employees' Retirement System (CalPERS), the world's largest pension fund, is also on target to meet a 20 percent energy use reduction goal in its real estate by the end of this year,
Other major real estate managers pursuing significant efficiency initiatives include Jones Lang LaSalle (JLL) -- whose ongoing retrofits of New York's famed Empire State Building will translate into $4.4 million in annual energy savings - and Deutsche Bank's RREEF Alternative Investments.